Question

Financial Statements of a Manufacturing Firm The following events took place for Rushmore Biking Inc, during February, the first month of operations as a producer of road bikes: • Purchased $483,800 of materials. • Used $416,100 of direct materials in production. • Incurred $360,000 of direct labor wages. • Applied factory overhead at a rate of 70% of direct labor cost. • Transferred $987,000 of work in process to finished goods. • Sold goods with a cost of $967,600. • Revenues eamed by selling bikes, $1,732,000. • Incurred $416,100 of selling expenses. • Incurred $154,800 of administrative expenses. a. Predse the income statement for Rushmore Biking Inc. for the month ending February 28. Assume that Rushmore Biking Inc. uses the perpetual inventory method.

Answer 1

a.

Rushmore Biking Inc.
Income Statement
For the Month Ended February 28
Revenues		1,732,000
Cost of Goods Sold		967,600
Gross Profit		764,400
Selling and Administrative Expenses:
Selling Expenses	416,100	$
Administrative Expenses	154,800
Total Selling and Administrative Expenses		570,900
Operating Income		193,500

b.

Materials inventory, February 28	67,700
Work in process inventory, February 28	41,100
Finished goods inventory, February 28	19,400
Materials inventory:
Purchased materials	483,800
Less: Materials used in production	416,100
Materials inventory Feb 28	67,700
Work in process inventory:
Materials used in production	416,100
Direct labor	360,000
Factory overhead (70% of 360000)	252,000
Additions to work in process	1,028,100
Less: Transferred to finished goods	(987,000)
Work in process inventory, February 28	41,100
Finished goods inventory:
Transferred to finished goods	987,000
Less: Cost of goods sold	(967,600)
Finished goods inventory, February 28	19,400