Question

The following events took place for Chi-Lite Inc. during June, the first month of operations as a producer of road bikes:

•	Purchased $396,730 of materials.
•	Used $343,310 of direct materials in production.
•	Incurred $294,600 of direct labor wages.
•	Applied factory overhead at a rate of 74% of direct labor cost.
•	Transferred $816,250 of work in process to finished goods.
•	Sold goods with a cost of $797,470.
•	Sold goods for $1,409,300.
•	Incurred $318,060 of selling expenses.
•	Incurred $120,840 of administrative expenses.

	Required:
	a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Colons (:) will fill in where needed.
	b. Determine the inventory balances at the end of the first month of operations.

Labels and Amount Descriptions

Labels
For the Month Ended June 30
June 30
Selling and administrative expenses
Amount Descriptions
Administrative expenses
Cost of goods sold
Factory overhead
Gross profit
Income from operations
Materials
Revenues
Selling expenses
Total selling and administrative expenses

Income Statement

a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Colons (:) will fill in where needed.

Chi-Lite Inc.

Income Statement

1
2
3
4
5
6
7
8

Inventory Balances

b. Determine the inventory balances at the end of the first month of operations.

Materials inventory, June 30
Work in process inventory, June 30
Finished goods inventory, June 30

Answer 1

a) Income statement

Sales		1409300
Cost of goods sold		-797470
Gross profit		611830
Less: Selling and administrative expense
Selling expense	318060
Administrative expense	120840
Total selling and administrative expenses		438900
Net operating income		172930

b) Ending inventory

Materials inventory, June 30 (396730-343310)	53420
Work in process inventory, June 30 (343310+294600*1.74-816250)	39664
Finished goods inventory, June 30 (816250-797470)	18780