Question

Question 5 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) $ 782,700 Less: Operating expenses Raw materials purchases $264,550 Direct labour cost 190,800 Advertising expense 89,900 Selling and administrative salaries 74,950 Rent on factory facilities 60,600 Depreciation on sales equipment 44,850 Depreciation on factory equipment 31,700 Indirect labour cost 28,450 Utilities expense 12,800 Insurance expense 8,750 807,350 Net Loss $(24,650) 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: Raw materials Work in process Finished goods October 1 $15,800 16,350 30,500 October 31 $29,650 14,800 45,950 2. Only 73% of the utilities expense and 54% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Answer 1

Answer

Rombert Company

Cost of goods manufactured schedule

For the Month Ended 31st October, 2020

Particulars	$	$
Raw materials used:
Opening raw materials	15,800
Add raw materials purchases	264,550
Raw materials available for production	280,350
Less closing raw materials	29,650
Raw materials used		250,700
Direct labour		190,800
Prime cost		441,500
Manufacturing overhead:
Indirect labour cost	28,450
Insurance	4,725
Utilities	9,344
Depreciation on factory equipment	31,700
Rent on factory facilities	60,600
Total manufacturing overhead		134,819
Total manufacturing cost		576,319
Add opening work in process inventory		16,350
		592,669
Less closing work in process inventory		14,800
Cost of goods manufactured		577,869

Rombert Company

Income statement

For the Month Ended October 31st, 2020

Particulars	$	$
Net sales		782,700
Less cost of goods sold:
Cost of goods manufactured	577,869
Add opening finished goods inventory	30,500
Cost of goods available for sales	608,369
Less closing finished goods inventory	45,950
Cost of goods sold		562,419
Gross profit		220,281
Less Operating expenses:
Depreciation on sales equipment	44,850
Insurance expense	4,025
Utilities	3,456
Selling and selling salaries	74,950
Administrative expense	89,900
Total operation expenses		217,181
Net profit		3,100

Calculations

Insurance to factory = 8,750 × 54% = $4,725

Insurance to selling = 8,750 × 46% = $4,025

Utilities to factory = 12,800 × 73% = $9,344

Utilities to selling = 12,800 × 27% = $3,456

Selling and administrative salaries, advertising expenses and depreciation on sales equipment are fully operating expenses. Insurance and utilities are partial operating expenses.

Raw materials purchased , direct labour are taken in prime cost in cost of goods manufactured.

Rent on factory facilities, depreciation of factory equipment, indirect labour are fully manufacturing overhead cost.

Net income is $3,100 in October.

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