Question

Veekay Company was organized on November 1 of the previous year. After seven months of start-up losses, management had expected to earn a profit during June, the most recent month. Management was disappointed, however, when the income statement for June also showed a loss. June's income statement follows: VEEKAY COMPANY Income Statement For the Month Ended June 30 Sales $742,500 Less operating expenses: Selling and administrative $ 43,400 salaries Rent on facilities 51,000 Purchases of raw materials 242,000 Insurance 11,100 Depreciation, sales 12,650 equipment Utilities costs 63,800 Indirect labour 127,800 Direct labour 106,700 Depreciation, factory 15,200 equipment Maintenance, factory 9,100 Advertising 94,600 777,350 Operating loss $ (34,850)

Answer 1

Required 1: Cost of goods manufactured:

Direct materials:
Raw material inventory, June 1	$20,100
(+) Purchases of raw material	$242,000
Raw material available for use	$262,100
(-) Raw material inventory, June 30	($50,950)
Raw material used in production		$211,150
Direct labor		$106,700
Manufacturing overhead:
Rent on facilities (51,000 * 85%)	$43,350
Insurance (11,100 * 90%)	$9,990
Utilities (63,800 * 80%)	$51,040
Indirect labor	$127,800
Maintenance factory	$9,100
Depreciation, factory equipment	$15,200
Total overhead cost		$256,480
Total manufacturing cost		$574,330
(+) WIP inventory, June 1		$78,650
		$652,980
(-) WIP inventory, June 30		($97,850)
Cost of goods manufactured		$555,130

Required 2: Income statement

Sales		$742,500
(-) Cost of goods sold:
Finished goods inventory, June 1	$23,320
(+) Cost of goods manufactured	$555,130
Goods available for sale	$578,450
(-) Finished goods inventory, June 30	($72,270)	($506,180)
Gross margin		$236,320
(-) Selling and administrative expenses:
Selling and administrative salaries	$43,400
Rent on facilities (51,000 * 15%)	$7,650
Insurance (11,100 * 10%)	$1,110
Utilities (63,800 * 20%)	$12,760
Depreciation, sales equipment	$12,650
Advertising	$94,600	($172,170)
Operating Income		$64,150