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PART FOUR: Waterways Ridgetown Inc. (WRI) was organized on January 1 of the current year. After...

PART FOUR:

Waterways Ridgetown Inc. (WRI) was organized on January 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:

Waterways Ridgetown Inc.

Income Statement

For the Month Ended August 31, 2019

Sales

$530,000

Less:

Operating Expenses

Indirect Labour Cost

$9,000

Utilities

25,000

Direct Labour Cost

80,000

Depreciation, Factory

21,000

Raw Materials

226,000

Depreciation

8,000

Insurance

8,000

Rent on Facilities

80,000

Selling and Administrative

22,000

65,000

$544,000

Net (Loss)

($14,000)

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 $14,000 loss for August, WRI’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:

  1. Some 50% of the utilities cost and 80% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities.
  2. Inventory balances at the beginning and end of August were as follows:

August 1

August 31

Raw Materials

$31,000

$78,000

Work in Process

18,000

10,000

Finished Goods

55,000

50,000

3. Only 75% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.

The president has asked you to check over the income statement and make a recommendation about whether the company should look for a buyer for its assets.

Required:

  1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured in good form for August.
  2. As a second step, prepare a new income statement for August.
  3. Based on your statements prepared in parts (1) and (2), would you recommend that the company look for a buyer?
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Answer #1

Waterways Ridgetown Inc. Schedule of Cost of Goods Manufactured for the Month of August Opening inventory of Raw Material $31Answer with working is given below

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