Oluwalambe Ltd: raw materials ₦80,000 opening, ₦450,000 purchases, ₦95,000 closing; cost of raw materials consumed?
| Stock of raw materials 1- 1- 2007 | 80000 |
| Purchases of raw materials | 450000 |
| Stock of raw materials 31- 12- 2007 | 95000 |
| Direct wages | 65000 |
| Indirect wages | 28000 |
| Depreciation on plants | 32000 |
| Factory rent | 3500 |
| Work in progress 1- 1- 2007 | 32500 |
| Work in progress 31 – 12- 2007 | 37500 |
Cost of raw materials consumed is
The cost of raw materials consumed shows how much raw material was actually used in production during the year. This is different from raw materials purchased because some materials from the previous year were used, and some purchased materials remained unused.
The formula is: Raw Materials Consumed = Opening Stock of Raw Materials + Purchases – Closing Stock of Raw Materials.
From the data: Opening Stock (1 Jan 2007) = ₦80,000. Purchases = ₦450,000. Closing Stock (31 Dec 2007) = ₦95,000.
Calculation: ₦80,000 + ₦450,000 – ₦95,000 = ₦435,000. This means the factory used ₦435,000 worth of raw materials during 2007. The remaining items (wages, depreciation, rent, work in progress) are not included in this calculation as they relate to other cost categories.
Was this explanation helpful?
Something wrong or missing? Tell us — we read every report and fix issues fast.