Question

Problem IlI: (20%) QTEK Company is a manufacturer of smart phones. Its controller resigned in October 2017. An inexperienced assistant accountant has prepared the following income statement for the month of October 2017. OTEK COMPANY Iscome Statement For the Month Ended October 31, 2017 Sales revenue $780,000 Less: Operating expenses Raw materials purchases $264,000 190,000 90,000 Direct labor cest Advertising expense Selling and administrative salaries Rent on factory faciitics 75,000 60,000 Depreciation on sales equipment 45,000 Depreciation on factory equipment 31,000 Indirect labor cost 28.000 Unlities expense Insurance espense 12,000 8000 803,000 $123.000) Net loss Prior to October 2017, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows. .Inventory balances at the beginning and end of October were: October 1 October 31 Raw materials is,000 $29,000 Work in process 20,000 14,000 Finished goods 30,000 50,000 2 Only 75% of the utilities expense and 60 % of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities. Instructions Prepare a schedule of cost of goods manufactured for October 2017. Prepare a correct income statement for October 2017

Answer 1

a.

Schedule of Cost of Goods Manufactured
For the Month Ended October 31, 2017
Direct Materials
Beginning Raw Materials Inventory		$          18,000.00
Add: Purchases of raw materials		2,64,000.00
Deduct: Ending Raw Materials Inventory		29,000.00
Direct Materials used in production		$       2,53,000.00
Direct Labor		$       1,90,000.00
Manufacturing Overhead (see below)		1,04,800.00
Total Manufacturing costs		5,47,800.00
Add: Beginning WIP Inventory		20,000.00
Deduct: Ending WIP Inventory		14,000.00
Cost of Goods Manufactured for the Year		$       5,53,800.00
Add: Beginning Finished Goods Inventory		30,000.00
Deduct: Ending Finished Goods Inventory		50,000.00
Cost of Goods Sold		$       5,33,800.00

Manufacturing Overhead
Rent on factory facilities	60000
Depreciation on factory equipment	31000
Utilities Expense (12000*75%)	9000
Insurance Expense (8000*60%)	4800
Total	104800

b.

Income Statement
For the Month Ended October 31, 2017
Sales Revenue		7,80,000
Cost of Goods Sold		5,33,800
Gross Profit		2,46,200
Operating Expenses:
Advertising Expenses	90000
Selling & Administrative Salaries	75000
Depreciation on Sales Equipment	45000
Indirect labor Cost	28000
Utilities Expense (12000*25%)	3000
Insurance Expense (8000*40%)	3200
Total Expenses		244200
Net Income		2,000

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