Question

Veekay Company was organized on November 1 of the previous year. After seven months of start-up losses, management had expected to earn a profit during June, the most recent month. Management was disappointed, however, when the income statement for June also showed a loss. June's income statement follows: VEEKAY COMPANY Income Statement For the Month Ended June 30 $ 810,000 Sales Less operating expenses: Selling and administrative salaries 47,000 60,000 269,000 12,000 14,000 Rent on facilities Purchases of raw materials Insurance Depreciation, sales equipment Utilities costs Indirect labour Direct labour Depreciation, factory equipment Maintenance, factory Advertising 71,000 135,000 113,000 17,000 10,000 100,000 848,000 $ (38,000) Operating loss After seeing the $38,000 loss for June, Veekay's president stated, "I was sure we'd be profitable within six months, but after eight months we're still spilling red ink. Maybe it's time for us to throw in the towel. To make matters worse, I just heard that Debbie won't be back from her surgery for at least six more weeks." Debbie is the company's controller; in her absence, the statement above was prepared by a new assistant who has had little experience in manufacturing operations. Additional information about the company follows:

Answer 1

The income statement provided in the question is not correct as the new assistant has not considered the opening and closing inventory to reach at the operating profits of the company. The revised Income Statement has been prepared in excel sheet and a screenshot has been attached.

$ 2,35,000.00 $ 1,13,000.00 SCHEDULE OF GOODS MANUFACTURED Direct Materials Beginning Raw Material Inventory $ 21,000.00 Add: Cost of raw material purchased $ 2,69,000.00 Total raw material available $ 2,90,000.00 Less: Ending Raw material Inventory | $ 55,000.00 Total Raw material used Direct Labor Manufacturing Overheads Indirect labor $ 1,35,000.00 Depreciation-factory Equipment $ 17,000.00 Maintenance-factory $ 10,000.00 Rent on facilities $ 51,000.00 Insurance $ 10,800.00 Utility costs $ 56,800.00 Total Overhead Costs Total manufacturing costs Add: Beginning Work in progress $ 2,80,600.00 $ 6,28,600.00 $ 80,000.00 $ 7,08,600.00 $ 1,01,000.00 $6,07,600.00 Less: Closing work in progress Cost of goods manufactured $ 8,10,000.00 $ 5,54,600.00 INCOME STATEMENT Sales Cost of goods sold Beginning finished goods inventory $ 24,400.00 Add: Cost of goods manufactured $6,07,600.00 Total goods available for sale $ 6,32,000.00 Less: Ending finished goods inventory $ 77,400.00 Cost of goods sold Selling and Admin Expenses Selling and Admin Salaries $ 47,000.00 Rent on facilities $ 9,000.00 Insurance $ 1,200.00 Utility costs $ 14,200.00 Depreciation on sales equipment $ 14,000.00 Advertising $ 1,00,000.00 Selling and Admin Expenses Operating Profits $ 1,85,400.00 $ 70,000.00