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3/5 Chapter 1-2 Assignment 1 Questions P1.5 (LO3), AN Empire Lid. is a manufacturer of smartphones. Its controller resigned in October 2020 An inexperienced assistant accountant has prepared the following income statement for the month of October 2020 Empire Ltd. Income Statement For the Month Ended October 31, 2020 HKS7,800,000 Sales revenue Less: Operating expenses Raw materials purchases Direct labor cost Advertising expense Selling and administrative salaries Rent on factory facilities Depreciation on sales equipment Depreciation on factory equipment Indirect labor cost Utilities expense Insurance expense Net loss HK$2.640,000 1.900,000 900,000 750,000 600,000 450,000 310,000 280.000 120,000 80.000 8,030.000 HKS (230,000) Prior to October 2020, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows. 1. Inventory balances at the beginning and end of October were: October 1 October 31 Raw materials HK$180,000 HKS290.000 Work in process 200.000 140,000 Finished goods 300,000 500,000 2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities Instructions a. Prepare a schedule of cost of goods manufactured for October 2020 b. Prepare a correct income statement for October 2020 Weygandt, J., Kimmel P., Kieso, K. Weygandt's Managerial Accounting: Tools fo Decision Making (1s Global Edition. pp.1-38-39). Singapore: John Wiley & Sons

Answer 1

a)

EMPIRE LTD STATEMENT OF COST OF GOODS MANUFACTURED FOR THE MONTH ENDED OCTOBER 31 2020
Raw material inventory 1/10	180000
Raw material purchase	2820000
Raw material available for use	2820000
less:Raw material inventory 31/10	-290000
Raw material used		2530000
Direct labor cost		1900000
Overhead cost
Rent on factory facilities	600000
Depreciation on factory equipment	310000
Indirect labor cost	280000
Utilities cost [120000*75%]	90000
Insurance [80000*60%]	48000
Total Factory overhead cost		1328000
Total manufacturing cost incurred during the month		5758000
Beginning work in process 1/10		200000
		5958000
less:Work in process 31/10		-140000
cost of goods manufactured		5818000

b)Cost of goods sold =Finished goods inventory 1/10 +cost of goods manufactured -Ending Finished Goods inventory

                              = 300000 +5818000 - 500000

                               = 5618000

EMPIRE LTD INCOME STATEMENT FOR THE MONTH ENDED OCTOBER 31 2020
Sales revenue		7800000
Less:cost of goods sold		(5618000)
Gross margin		2182000
less:Selling and administrative expense
Advertising expense	900000
Selling and administrative salaries	750000
Depreciation on sales equipment	450000
Utilities [120000*25%]	30000
Insurance [80000*40%]	32000
Total Selling and administrative cost		(2162000)
Net Income / (loss)		20000

**If 75% of utilities cost is for factory then remaining 100-75 = 25% is for operation .same for Insurance cost ,If 60% of utilities cost is for factory then remaining 100-60= 40% is for operation