Question

Swanson Company was organized on March 1 of the current year. After five months of start-up 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. Augusts' income statement follows: Swanson Company Income Statement For the Month Ended August 31 $831,000 Sales.. Less operating expenses: Indirect labor cost.............. Utilities. Direct labor cost ........ Depreciation, factory equipment Raw materials purchased. Depreciation, sales equipment Insurance.. Rent on facilities .... Selling and administrative salaries Advertising ........ Net operating loss.... $ 74,000 26,000 112,000 30,000 370,000 40,000 6,000 45,000 52,000 98.000 853,000 $(22.000) The company's controller resigned a month ago. Sarah, a new inexperienced assistant in the controller's office, prepared the income statement above. Additional information about the company follows: a. 75% of the utilities cost and 50% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities. b. Inventory balances at the beginning and end of August were: Raw materials..... Work in process.. Finished goods ... August 1 $15,000 $27,000 $35,000 August 31 $20,000 $42,000 $60,000 c. 85% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities. Required: 1. Prepare a schedule of cost of goods manufactured for August. 2. Prepare a new, corrected, income statement for August.

Answer 1

Swanson Company 15000 370000 385000 20000 365000 112000 Schedule of Cost of Goods Manufactured For the Month Ended August 31 Direct materials: Raw materials inventory, August 1 Add: Purchases of raw materials Raw materials available for use Deduct: Raw materials inventory, August 31 Raw materials used in production Direct labor Manufacturing overhead: Indirect labor cost Utilities (75% < $26,000) Depreciation, factory equipment Insurance (50% * $6,000) Rent on facilities (85% < $45,000) Total overhead costs Total manufacturing costs Add: Work in process inventory, August 1 74000 19500 30000 3000 38250 164750 641750 27000 668750 42000 626750 Deduct: Work in process inventory, August 31 Cost of goods manufactured Income Statement For the Month Ended August 31 Sales 831000 35000 626750 661750 60000 601750 229250 Cost of goods sold: Finished goods inventory, August 1 Add: Cost of goods manufactured Goods available for sale Deduct: Finished goods inventory, August 31 Gross margin Selling and administrative expenses: Utilities (25% < $26,000) Depreciation, sales equipment Insurance (50% < $6,000) Rent on facilities (15% ~ $45,000) Selling and administrative salaries Advertising Net operating income 6500 40000 3000 6750 52000 98000206250 23000