Question

Empire 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 EMPIRE COMPANY Income Statement For the Month Ended October 31, 2017 Sales revenue 780,000 Less: Operating expenses Raw materials purchases 264,000 190,000 Direct labor cost Advertising expense 90,000 75,000 Selling and administrative salaries Rent on factory facilities 60,000 Depreciation on sales equipment 45,000 31,000 Depreciation on factory equipment Indirect labor cost 28,000 12,000 Utilities expense 803,000 Insurance expense 8,000 23,000) 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. 1. Inventory balances at the beginning and end of October were: October 1 October 31 18,000 Raw materials 29,000 Work in process 20,000 14,000 50,000 Finished goods 30,000 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.

(A) prepare a correct income statement for october 2017

(B) Prepare a schedule of cost of goods manufactured for October 2017. (Round answers to 0 decimal places, e.g. 125.)

Answer 1

B) CALCULATION OF COST OF GOODS MANUFACTURED Particulars Amount Amount $18,000 Openning raw materials Add: Raw material purchases Total raw material available Less: Ending raw materials Direct material used Direct labor Manufacturing overhead Rent on factory facilities Depreciation on factory equipment $31,000 Indirect labor Factory utilities ($12,000*75%) Factory insurance ($6,000*60% Total manufacturing overhead Total manufacturing costs Add: Openning WIP Less: Ending WIP Cost of Goods manufactured $282,000 $253,000 $60,000 $28,000 $132,800 $14,000 $581,800 A) CALCULATION OF INCOME STATEMENT Particulars Amount Amount Less: Cost of Goods sold: Openning finished goods Add: Cost of Goods manufactured $581,800 Total cost of goods available for sale $611,800 Less: Ending finished goods Cost of Goods sold Gross profit Less: Operating expenses: Advertising expenses Selling and administrative expenses$75,000 Depreciation expense Utilities expenses ($12,000*25% Insurance expenses ($8,000* 40% Total operating expenses Net income $30,000 $50,000 $218,200 $216,200 5 2