Question

Empire 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. $794,400 EMPIRE COMPANY Income Statement For the Month Ended October 31, 2020 Sales revenue Less: Operating expenses Raw materials purchases $263,500 Direct labor cost 191,800 Advertising expense 92,300 Selling and administrative salaries 76,900 Rent on factory facilities 62,500 Depreciation on sales equipment 45,100 Depreciation on factory equipment 33,000 Indirect labor cost 29,500 Utilities expense 12,400 Insurance expense 8,100 Net loss 815,100 $(20,700) 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 Work in process $20,400 21,000 29,900 $35,700 14,200 53,500 Finished goods 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.

Answer 1

Cost of goods Manufactured $ 21,000 $ 20,400 $ 263,500 $ 283,900 $ (35,700) $ $ 248,200 191,800 WIP inventory, Oct1 Direct materials Raw material inventory, Oct1 Raw material purchases Total Material available for use Raw material inventory, Oct 31 Direct materials used Direct labor Manufacturing overhead Factory facility rent Depreciation Indirect labour Utilities expense Insurance expense Total Manufacturing overhead Total Manufacturing cost $ $ $ $ 62,500 33,000 29,500 9,300 4,860 12,400 x 75% 8,100 x 60% $ 139,160 $ $ $ $ 579,160 600,160 (14,200) 585,960 WIP inventory, Oct 31 Cost of goods manufactured