Question

Empire Company is a manufacturer of smart phones. Its controller resigned in October 2017. An inexperienced assistant accountant has prepared the following income statement for the month of October 2017 EMPIRE COMPANY Income Statement. For the Month Ended October 31, 2017 Sales revenue $794,300 Less: Operating expenses Raw materials purchases $264.700 Direct labor cost 192,000 Advertising expense 92,000 Selling and administrative salaries 76,100 Rent on factory facilities 62,300 Depreciation on sales equipment 44,100 Depreciation on factory equipment 32,900 Indirect labor cost 28,400 Utilities expense 12,600 Insurance expense 8.600 813.700 $(19,400) Net loss Prior to October 2017, 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 $19,100 Raw materials $35,700 Work in process 19,600 14.300 53 500 Finished goods 29.500 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

Preparing Schedule of Cost of Goods Manufactured for October 2017:-

EMPIRE COMPANY

Schedule of Cost of Goods Manufactured

For the Month Ended October 31,2017

Description	Amount
Raw Materials Inventory (October 1)	$19,100
Add:- Raw Materials Purchases	264,700
Raw Materials Available	$283,800
Less:- Raw Materials Inventory (October 31)	(35,700)
Total Cost of Raw Materials Used	$248,100
Direct Labor cost	192,000
Add:- Factory Overhead:-
Rent on Factory Facilities	62,300
Depreciation on Factory Equipment	32,900
Indirect Labor cost	28,400
Utilities Expense (75% factory)	9,450
Insurance Expense (60% factory)	5,160
Total Manufacturing Overhead	$578,310
Add:- Work in Process Inventory (October 1)	19,600
Less:- Work in Process Inventory (October 31)	(14,300)
Cost of Goods Manufactured	$583,610

​​​​​​EMPIRE COMPANY

Schedule of Cost of Goods Sold

For the Month Ended October 31,2017

Description	Amount
Cost of Goods Manufactured	$583,610
Add:- Finished Goods Inventory (October 1)	29,500
Goods Available for Sale	$613,110
Less:- Finished Goods Inventory (October 31)	(53,500)
Cost of Goods Sold	$559,610

EMPIRE COMPANY

Income Statement

For the Month Ended October 31,2017

Accounts Title	Amount	Amount
Sales Revenue	$794,300
Less:- Cost of Goods Sold	(559,610)
Gross Profit		$234,690
Less:- Operating Expenses:-
Advertising Expense	$92,000
Selling and Administrative Salaries	76,100
Depreciation on Sales Equipment	44,100
Utilities Expense (25% Selling and Administrative Expense)	3,150
Insurance Expense (40% Selling and Administrative Expense)	3,440
Total Operating Expenses		$(218,790)
Net Income		$15,900

Working Notes:-

* 75%of the Utilities Expense and 60% of the Insurance Expense apply to factory operations. The remaining amount should be charged to Selling and Administrative Activities.

So 75% of Utilities Expense which is $9,450 (75% of $12,600) show in Schedule of Cost of Goods Manufactured and Remaining 25% which is $3,150 (25% of $12,600) show in Income Statement.

And 60% of Insurance which is $5,160 (60% of $8,600) show in Schedule of Cost of Goods Manufactured and Remaining 40% which is $3,440 (25% of $8,600) show in Income Statement.