Question

EX 16-14 Financial statements of a manufacturing fim the following events took place for Chi-Lite Inc. during June, the first month of operatiens 0,000 ucer of road bikes: Purchased s400.0 of matenials . Used $343,750 of direct materials in production. . Incurred $295,000 of direct labor wages. Applied factory overhead at a rate of 75% of direct labor cost. . Transferred $815,000 of work in process to finished goods. . Sold goods with a cost of $789,000. . Sold goods for $1,400,0o0 . Incurred $316,000 of selling expenses Incurred $125,000 of administrative expenses. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method B. Determine the inventory balances at the end of the first month of operations.

Answer 1

A. Income Statement for June

Sales	1400000
Less COGS	(789000)
Gross Income	620000
Less: Selling Expenses	(316000)
Less Administrative expenses	(125000)
Net Income	179000

Perpetual inventory method records sale or purchase immediately once occurred. Based on that income statement is prepared.

B. Calculation of Closing Inventory balance

Finished Goods

WIP goods transferred to FG	815000
Less: COGS	(789000)

Hence, Closing FG balance = $26000

Material

Material purchased	400000
Less: Utilized	(343750)
Closing balance	56250

Work in Process Inventory

Direct Material (Utilized) (a)	343750
Direct Labor (b)	295000
Factory Overheads 295000*75% (c)	221250
Total Manufacturing Cost (a+b+c)	860000
Less: Transferred to FG	(815000)
Closing Balance	45000