Question

Financial Statements of a Manufacturing Firm

The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes:

•	Purchased $276,100 of materials.
•	Used $237,400 of direct materials in production.
•	Incurred $204,000 of direct labor wages.
•	Applied factory overhead at a rate of 75% of direct labor cost.
•	Transferred $570,600 of work in process to finished goods.
•	Sold goods with a cost of $552,200.
•	Revenues earned by selling bikes, $988,400.
•	Incurred $237,400 of selling expenses.
•	Incurred $88,400 of administrative expenses.

a. Prepare the income statement for Rushmore Biking Inc. for the month ending February 28. Assume that Rushmore Biking Inc. uses the perpetual inventory method.

b. Determine the inventory balances on February 28, the end of the first month of operations.

Answer 1

a) Income statement

Sales		988400
Cost of goods sold		-552200
Gross profit		436200
Selling and administrative expense
Selling expense	237400
Administrative expense	88400
Total Selling and administrative expense		325800
Operating income		110400

b) Inventory balance

Current assets
Inventories
Direct material (276100-237400)	38700
Work in process (237400+204000*1.75-570600)	23800
Finished goods (570600-552200)	18400	80900