Question

Tombert Company is a manufacturer of computers. Its controller resigned in October 2020. An inexperienced assistant accountant has prepared the following income statement for the month of October 2020. TOMBERT COMPANY Income Statement For the Month Ended October 31, 2020 Sales (net) $ 783,900 Less: Operating expenses Raw materials purchases $264,650 Direct labour cost 190,350 Advertising expense 90,000 Selling and administrative salaries 74,700 Rent on factory facilities 60,900 Depreciation on sales equipment 45,000 Depreciation on factory equipment 31,500 Indirect labour cost 28,700 Utilities expense 12,700 Insurance expense 8,950 807,450 Net Loss $(23,550) Prior to October 2020, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As his friend, he has asked you to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired the following additional information. 1. Inventory balances at the beginning and end of October were as follows: October 1 $9,700 Raw materials Work in process Finished goods October 31 $29,950 14,550 45,950 16,350 30,200 2. Only 71% of the utilities expense and 58% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Answer 1

Schedule of Cost of Goods Manufactured
Beginning Inventory of WIP			16,350
Current Cost of Manufacture:
Beginning Inventory of RM	9,700
Add: Purchase		2,64,650
Total RM available		2,74,350
Less: Ending inventory of RM	29,950
Direct Material used			2,44,400
Direct Labour cost			1,90,350
Manufacturing Overheads
Rent on Factory facilities	60,900
Depreciation on Factory Equipment	31,500
Indirect Labour cost		28,700
Utilities expense (12700*71%)	9,017
Insurance expense (8950*58%)	5191
Total Manufacturing Overheads		1,35,308
Total Manufacturing cost incurred		5,70,058
Total Cost of Work in Process inventory		5,86,408
Less: Ending inventory of WIP			14,550
Cost of goods manufactured			5,71,858
Income Statement:
Sales revenue			7,83,900
Less: Cost of goods sold
Beginning inventory of FG	30,200
Add: Cost of goods mnufactured	5,71,858
Total Cost of goods available for sale	6,02,058
Less: Ending inventory of FG	45,950
Cost of Goods sold			5,56,108
Gross Profit			2,27,792
Less: Operating expense
Advertising expense		90,000
Selling admin expense	74,700
Depreciation on sales equipment	45,000
Utilities expense (12700*29%)	3683
Insurance expense (8950*42%)	3759
Total Operating expense		2,17,142
Net Income			10,650