Question

Bonita Company is a manufacturer of smart phones. Its controller resigned in October 2020. An inexperienced assistant accountant has prepared the following income statement for the month of October 2020. BONITA COMPANY Income Statement For the Month Ended October 31, 2020 Sales revenue $794,500 Less: Operating expenses Raw materials purchases $264,000 Direct labor cost 189,200 Advertising expense 91,100 Selling and administrative salaries 76,700 Rent on factory facilities 61,500 Depreciation on sales equipment 44,900 Depreciation on factory equipment 32,600 Indirect labor cost 28,500 Utilities expense 12,400 Insurance expense 8,700 809,600 Net loss $(15,100) 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 $20,100 $35,200 Work in process 19,500 14,300 Finished goods 30,700 53,100 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.

Prepare a schedule of cost of goods manufactured for October 2020. Prepare a correct income statement for October 2020.

Answer 1

Answer:

Requirement 1: Schedule of cost of goods manufactured for October 2020.

	$	$
Direct materials:
Beginning raw materials	20,100
Add: cost of raw materials purchased	264,000
Total raw materials available	284,100
Less: ending raw materials	35,200
Total raw materials used		248,900
Direct labor		189,200
Manufacturing overhead:
Indirect labor	28,500
Rent on factory facilities	61,500
Depreciation on factory equipment	32,600
Utilities expense ( 12,400 × 75%)	9,300
Insurance expense (8,700 × 60%)	5,220
Total manufacturing overhead		137,120
Total manufacturing costs		575,220
Add: Beginning work-in-progress		19,500
		594,720
Less: Closing work-in-progress		14,300
Cost of goods manufactured		580,420

​​​​Requirement 2: Income statement for October 2020.

	$	$
Sales		794,500
Cost of goods sold:
Beginning finished goods	30,700
Cost of goods manufactured	580,420
Total goods available for sale	610,500
Ending finished goods	53,100
Cost of goods sold		558,020
Gross profit		236,480
Operating expenses:
Selling and administrative expenses;
Selling and administrative salaries	76,700
Advertising expenses	91,100
Depreciation on sales equipment	44,900
Utilities expenses ($12,400 × 25%)	3,100
Insurance expense ($8,700 × 40%)	3,480
Total selling and administrative expenses	219,280
Total operating expenses		219,280
Net income		17,200