Question

Swift Company was organized on March 1 of the current year. After five months of startup losses management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses $ 460,000 Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising $ 12,600 15,000 68,000 23,000 171,000 18,000 2,200 41,000 34,000 82,700 467,500 Net loss $ (7,500) The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam has had little experience in manufacturing operations. After seeing the $7,500 loss for August, Swift's president stated, "I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way, I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being Additional information about the company follows a. Some 50% of the utilities cost and 80% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities

Answer 1

Ques 1
Direct materials:
Raw materials inventory, August 1	18,000
Add: Purchases of raw materials	171,000
Raw materials available for use	189,000
Deduct: Raw materials inventory, August 31	15000
Raw materials used in production		174,000
Direct Labor		68000
Manufacturing overhead		75610
Total manufacturing costs		317,610
Add: Work in process inventory, August 1		8000
Deduct: Work in process inventory, August 31		$16,000
Cost of goods manufactured		$309,610
Working:
Manufacturing overheads
Indirect labor	12600
Utilities(15000*50%)	7500
Dep factory equipment	23000
Insurance(2200*80%)	1760
Rent (41000*75%)	30750
total	75610
Ques 2
Sales		$460,000
Cost of goods sold:
Finished goods inventory, August 1	$41,000
Add: Cost of goods manufactured	309,610
Goods available for sale	350,610
Deduct: Finished goods inventory, August 31	46,000	304,610
Gross margin		155,390
Less:operating expenses
Utilities(15000*50%)	7500
Dep sales equipment	18000
Insurance(2200*20%)	440
Rent (41000*25%)	10250
Selling and administrative salaries	34000
Advertising	82700	152,890
Net operating income		$2,500