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
Sales				$	667,500
Less operating expenses:
Selling and administrative salaries	$	39,400
Rent on facilities		41,000
Purchases of raw materials		212,000
Insurance		10,100
Depreciation, sales equipment		11,150
Utilities costs		55,800
Indirect labour		119,800
Direct labour		99,700
Depreciation, factory equipment		13,200
Maintenance, factory		8,100
Advertising		88,600			698,850
Operating loss				$	(31,350	)

     After seeing the $31,350 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:

Only 85% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.

1. Inventory balances at the beginning and end of June were as follows:

	June 1	June 30
Raw materials	$19,100	$46,450
Work in process	$77,150	$94,350
Finished goods	$22,120	$66,570

c. Some 90% of the insurance and 80% of the utilities cost apply to factory operations; the remaining amounts apply to selling and administrative activities.

    The president has asked you to check over the above income statement and recommend whether the company should continue operations.

Required:

1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for June.

2. As a second step, prepare a new income statement for the month.

Answer 1

184,650 Answert Veekay Gmpany Schedule of Est of Goods Manufactured - For the month Ended June 30 Direct Materials: Raw materials inventory June 1 19,100 Add: Purchases of raw materials 219,000 Raw materials available for use 23 1,100 Deduct: Row materials inventory, June 30 46,450 Raw materials used in production Direct labour manufacturing over head: Rent on facilities (41,000x857) 34890 Insurance (10,100x 90'7.) 9090 Utilities (55,800X 80%) 44.640 Indirect labour 119.800 Maitenance, factory 81100 Depreciation, factory equipment 13,200 Total over head casts Total manufacturing costs Add! Work in process inventory June I. 99.700 299,680 514,030 77,750 591,180 94,350 496,830. Deduct:work In process Inventory, June 36 Cost of goods manufacturing

$ 667,500 Veekay Company Income statement for the month Ended June 30 sales Cost of goods sold: Finished goods inventory June ! 22,120 Add: Gost of goods manufactured 496,830 Goods available for sale 518,950 Deduct: Finished Greeds inventory June 30661570 Gross margin Selling and administrative expenses, · Selling and administrative salaries 39,400 Rent on facilities. (1000X15%) 61 50 Depreciation, sales equipment 11,150 Insurance (10.100 x 10'%) 1010 Utilities (55,800 X 207.) 111 GO 88,600 Advertising operating Income 452,380 215.120 157,558 S7.562