Question

Financial Statements of a Manufacturing Firm The following events took place for Chi-Lite Inc. during June, the first month of operations as a producer of road bikes: • Purchased $400,000 of materials. • Used $343,750 of direct materials in production. • Incurred $295,000 of direct labor wages. • Applied factory overhead at a rate of 75% of direct labor cost. • Transferred $815,000 of work in process to finished goods. • Sold goods with a cost of $789,000. • Sold goods for $1,400,000. • Incurred $316,000 of selling expenses. • Incurred $125,000 of administrative expenses. a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method.

Answer 1

a) Income statement
Sales	1,400,000
Less: Cost of goods sold	(789,000)
Gross profit	611,000
Operating expense
Less: Selling expense	(316,000)
Less: Administrative expense	(125,000)
Total operating expense	(441,000)
Net operating income	170,000
b) Inventory balance:
Raw material (400000-343750)	56,250
Work in process (56250+295000+221250-815000)	242,500
Finished goods (815000-789000)	26,000