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Phillips Company is a manufacturer of computers. Its controller resigned in October 2012. An inexperienced assistant accountant has prepared the following income statement for the month of October 2012.
PHILLIPS COMPANY Income Statement For the Month Ended October 31, 2012
Sales (net)
$780,000
Less: Operating expenses
Raw materials purchases
$264,000
Direct labor cost
190,000
Advertising expense
90,000
Selling and administrative salaries
75,000
Rent on factory facilities
60,000
Depreciation on sales equipment
45,000
Depreciation on factory equipment
31,000
Indirect labor cost
28,000
Utilities expense
12,000
Insurance expense
8,000
803,000
Net loss
($23,000)
Prior to October 2012, 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:
1-Oct
31-Oct
Raw materials
$18,000
$29,000
Work in process
16,000
14,000
Finished goods
30,000
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 2012.
(b) Prepare a correct income statement for October 2012.
Financial Statement Analysis and Preparation
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