Phillips Company is a manufacturer of computers. Its controller resigned in October 2014. An inexperienced assistant accountant has prepared the following income statement for the month of October 2014.
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PHILLIPS COMPANY
Income Statement
For the Month Ended October 31, 2014
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Sales (net)
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$780,000
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Less: Operating expenses
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Raw materials purchases
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$264,000
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Direct labor cost
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190,000
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Advertising expense
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90,000
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Selling and administrative salaries
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75,000
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Rent on factory facilities
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60,000
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Depreciation on sales equipment
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45,000
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Depreciation on factory equipment
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31,000
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Indirect labor cost
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28,000
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Utilities expense
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12,000
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Insurance expense
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8,000
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803,000
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Net loss
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($23,000)
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Prior to October 2014, 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:
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October 1
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October 31
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Raw materials
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$18,000
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$29,000
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Work in process
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16,000
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14,000
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Finished goods
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30,000
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45,000
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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 2014.
(b) Prepare a correct income statement for October 2014.