Phillips Company is a manufacturer of computers. Its controller resigned in Octo
ID: 2365660 • Letter: P
Question
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) $794,630 Less: Operating expenses Raw materials purchases $264,200 Direct labor cost 189,220 Advertising expense 92,250 Selling and administrative salaries 76,460 Rent on factory facilities 62,680 Depreciation on sales equipment 44,920 Depreciation on factory equipment 32,500 Indirect labor cost 28,280 Utilities expense 11,800 Insurance expense 8,980 811,290 Net loss $(16,660 ) Prior to October 2012, the company had been profitable every month. The companyExplanation / Answer
TOMBERT COMPANY Cost of Goods Manufactured Schedule For the Month Ended October 31, 2010 Work in process, October 1 $ 16,000 Direct materials Raw materials inventory, October 1 $ 18,000 Raw materials purchases 264,000 Total raw materials available for use 282,000 Less: Raw materials inventory, October 31 34,000 Direct materials used $248,000 Direct labor 190,000 Manufacturing overhead Factory facility rent 60,000 Depreciation on factory equipment 31,000 Indirect labor 28,000 Factory utilities* 8,400 Factory insurance** 4,800 Total manufacturing overhead 132,200 Total manufacturing costs 570,200 Total cost of work in process 586,200 Less: Work in process, October 31 14,000 Cost of goods manufactured $572,200 **$12,000 X 70% = $8,400 **$8,000 X 60% = $4,800 (b) TOMBERT COMPANY Income Statement For the Month Ended October 31, 2010 Sales (net) $780,000 Cost of goods sold Finished goods inventory, October 1 $ 30,000 Cost of goods manufactured 572,200 Cost of goods available for sale 602,200 Less: Finished goods inventory, October 31 48,000 Cost of goods sold 554,200 Gross profit 225,800 Operating expenses Advertising expense 90,000 Selling and administrative salaries 75,000 Depreciation expense—sales equipment 45,000 Utilities expense* 3,600 Insurance expense** 3,200 Total operating expenses 216,800 Net income $ 9,000 *$12,000 X 30% **$8,000 X 40%