Problem 14-5A Empire Company is a manufacturer of smart phones. Its controller r
ID: 2336094 • Letter: P
Question
Problem 14-5A 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 $ 794,800 Less: Operating expenses Raw materials purchases $ 264,900 Direct labor cost 189,100 Advertising expense 91,500 Selling and administrative salaries 77,600 Rent on factory facilities 61,600 Depreciation on sales equipment 45,000 Depreciation on factory equipment 32,900 Indirect labor cost 30,000 Utilities expense 13,000 Insurance expense 9,100 814,700 Net loss $( 19,900 ) 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 Raw materials $ 19,000 $ 36,000 Work in process 20,700 14,500 Finished goods 31,000 53,600 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.
1. Prepare a schedule of cost of goods manufactured for October 2017. (Round answers to 0 decimal places, e.g. 125.)
2. Prepare a correct income statement for October 2017.
Explanation / Answer
Schedule of cost of goods manufactured
For the month of October 2017
Income statement
For the month of October 2017
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Begining raw materials inventory 19,000 Add: Raw materials purchases 264,900 Less: Ending raw materials inventory -36,000 Raw materials consumed 247,900 Direct labor 189,100 Manufacturing overheads: Rent on factory facilities 61,600 Depreciation on factory equipment 32,900 Indirect labor cost 30,000 Utilities expense (13,000 x 75%) 9,750 Insurance expense (9,100 x 60%) 5,460 Total manufacturing cost 576,710 Add: Begining work in process inventory 20,700 Less: Ending work in process inventory - 14,500 Cost of goods manufactured 582,910