Ortiz Company is a manufacturer of toys. Its
controller resigned in August 2014. An inexperienced assistant accountant has
prepared the following income statement for the month of August 2014.
P1-5B – Prepare a cost of
goods manufactured schedule and a correct income statement
P1-5B Ortiz
Company is a manufacturer of toys. Its controller resigned in August 2014. An
inexperienced assistant accountant has prepared the following income statement
for the month of August 2014.
|
ORTIZ
COMPANY
|
||
|
Income
Statement
|
||
|
For
the Month Ended August 31, 2014
|
||
|
Sales (net)
|
$675,000
|
|
|
Less: Operating
expenses
|
||
|
Raw materials purchases
|
$220,000
|
|
|
Direct labor cost
|
160,000
|
|
|
Advertising expense
|
75,000
|
|
|
Selling and
administrative salaries
|
70,000
|
|
|
Rent on factory
facilities
|
60,000
|
|
|
Depreciation on sales
equipment
|
50,000
|
|
|
Depreciation on factory
equipment
|
35,000
|
|
|
Indirect labor cost
|
20,000
|
|
|
Utilities expense
|
10,000
|
|
|
Insurance expense
|
5,000
|
705,000
|
|
Net loss
|
($30,000)
|
|
Prior to August 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 August were:
|
August
1
|
August
31
|
|
|
Raw materials
|
$19,500
|
$35,000
|
|
Work in process
|
25,000
|
21,000
|
|
Finished goods
|
40,000
|
52,000
|
2. Only 60%
of the utilities expense and 70% 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 August 2014.
(b) Prepare
a correct income statement for August 2014.
TUTORIAL
PREVIEW
(a) Prepare
a schedule of cost of goods manufactured for August 2014.
|
ORTIZ
COMPANY
|
|||
|
Cost
of Goods Manufactured Schedule
|
|||
|
For
the Month Ended August 31, 2014
|
|||
|
Work in process
inventory, August 1
|
|
|
$25,000
|
|
Direct materials
|
|
||
|
Raw materials
inventory, August 1
|
$19,500
|
||
|
Raw materials purchases
|
220,000
|
||
|
Total raw materials
available for use
|
239,500
|
||
File name: P1-5B Ortiz Company.xls File type: xls PRICE: $6
