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 $470,000 of materials. • Used $403,900 of direct materials in production. • Incurred $348,000 of direct labor wages. • Applied factory overhead at a rate of 72% of direct labor cost. • Transferred $950,000 of work in process to finished goods. • Sold goods with a cost of $793,800. • Sold goods for $1,408,500. • Incurred $317,900 of selling expenses. • Incurred $125,700 of administrative expenses. This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Round your answers to the nearest dollar. Chi-Lite Inc. Income Statement For the Month Ended June 30 Selling and Administrative Expenses: Total Selling and Administrative Expenses b. Determine the inventory balances at the end of the first month of operations. Round your answers to the nearest dollar. Materials inventory, June 30 $ Work in process inventory, June 30 $ Finished goods inventory, June 30 $

Answer 1

Chi-Lite Inc.
Income Statement
For the Month Ended June 30
Revenues		$1,408,500
Cost of goods sold		$793,800
Gross Profit                                                     [$1,408,500 - $793,800]		$614,700
Selling and Administrative Expenses
Selling expenses	$317,900
Administration expenses	$125,700
tTotal Selling and Administrative Expenses   [$317,900 + $125,700]		$443,600
Income from Operations                                  [$614,700 - $443,600]		$171,100

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b. Inventory balances:
Materials inventory, June 30              [Purchased - Used = $470,000 - $403,900]	$66,100
Work-in Process inventory, June 30   [Refer working note 1]	$52,460
Finished Goods inventory, June 30     [Refer working note 2]	$156,200

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Working note 1 -Calculation of Work-in Process inventory balance at June 30
Beginining balance of Work-in-process		$0
Direct material used	$403,900
Add: Direct labor wages	$348,000
Add: Factory overhead                  [Direct labor wages x 72% = $348,000 x 72%]	$250,560
Total manufacturing cost		$1,002,460
Total cost of work-in-process        [$0 + $1,002,460]		$1,002,460
Less: Cost of Work-in-process transferred to finished goods inventory   (Cost of goods manufactured)		$950,000
Ending balance of Work-in-Process Inventory		$52,460

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Working note 2 - Calculation of Finshed goods inventory balance at June 30
Beginning balance of finished goods inventory	$0
Add: Cost of Work-in-process transferred to finished goods inventory   (Cost of goods manufactured)	$950,000
Cost of goods available for sale                        [$0 + $950,000]	$950,000
Less: Finished goods sold                                [Cost of Goods Sold]	$793,800
Ending balance of Finished goods Inventory	$156,200