Prepare a cost of goods manufactured schedule and a correct income statement. To
ID: 2406092 • Letter: P
Question
Prepare a cost of goods manufactured schedule and a correct income statement.
Tombert Company is a manufacturer of computers. Its controller resigned in October 2016. An inexperienced assistant accountant has prepared the following income statement for the month of October 2016.
TOMBERT COMPANY
Income Statement
For the Month Ended October 31, 2016
Prior to October 2016, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As his friend, he has asked you to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired the following additional information.
Inventory balances at the beginning and end of October were as follows:
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
Calculate the following:
(a)
Prepare a schedule of the cost of goods manufactured for October 2016.
CGM $577,800
(b)
Prepare a correct income statement for October 2016.
NI $1,000
TOMBERT COMPANY
Income Statement
For the Month Ended October 31, 2016
Sales (net) $780,000? Less: Operating expenses Raw materials purchases $264,000 Direct labour 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 labour cost 28,000 Utilities expense 12,000 Insurance expense 8,000 803,000? Net loss $ (23,000)Explanation / Answer
Solution:
Part a --- schedule of the cost of goods manufactured for October 2016
Statement of Cost of Goods manufactured
$$
$$
Beginning Inventory of Raw Material
$18,000
Plus: Raw material purchases
$264,000
Less: Ending Raw Material Inventory
-$29,000
Cost of raw material used in production
$253,000
Direct labor cost
$190,000
Manufacturing Overhead (Refer Note 1)
$132,800
Total Manufacturing Cost
$575,800
Add: Beginning Work in Process
$16,000
$591,800
Less: Ending Work in Process
-$14,000
Cost of Goods manufactured
$577,800
Note 1 --- Calculation of Total Manufacturing Overhead
$$
Rent on factory facilities
$60,000
Depreciation on factory equipment
$31,000
Indirect labour cost
$28,000
Utilities expense
($12,000*75% apply to factory operations)
$9,000
Insurance expense
($8,000*60% apply to factory operations)
$4,800
Total Manufacturing Overhead
$132,800
Part b --- Correct Income Statement for October 2016
Income Statement
for October 2016
Sales (net)
$780,000
Cost of Goods Sold (Refer Note 2)
$562,800
Gross Profit
$217,200
Selling and Administrative Expenses (Refer Note 3)
$216,200
Net Income
$1,000
Note 2 --- Cost of Goods Sold
$$
Cost of Goods manufactured (From part a)
$577,800
Plus: Beginning Finished Goods Inventory
$30,000
Cost of Goods Available for Sale
$607,800
Less: Ending Finished Goods Inventory
-$45,000
Cost of Goods Sold
$562,800
Note 3 --- Calculation of total selling and administrative expenses
$$
Advertising expense
90,000
Selling and administrative salaries
75,000
Depreciation on sales equipment
45,000
Utilities expense
($12,000*25% apply to S&A activities)
$3,000
Insurance expense
($8,000*40% apply to S&A activities)
$3,200
Total Selling and administrative expenses
$216,200
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Statement of Cost of Goods manufactured
$$
$$
Beginning Inventory of Raw Material
$18,000
Plus: Raw material purchases
$264,000
Less: Ending Raw Material Inventory
-$29,000
Cost of raw material used in production
$253,000
Direct labor cost
$190,000
Manufacturing Overhead (Refer Note 1)
$132,800
Total Manufacturing Cost
$575,800
Add: Beginning Work in Process
$16,000
$591,800
Less: Ending Work in Process
-$14,000
Cost of Goods manufactured
$577,800