P1-5A 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.

 

Phillips Company Income Statement

 

For the Month Ended October 31, 2014

 

 

 

 

Sales revenue	Â	Â	$780,000
Less: Operating expenses	Â	Â	Â
Raw materials purchases	$264,000	Â	Â
Direct labor cost	190,000	Â	Â
Advertising expense	90,000	Â	Â
Selling and administrative salaries	75,000	Â	Â
Rent on factory facilities	60,000	Â	Â
Depreciation on sales equipment	45,000	Â	Â
Depreciation on factory equipment	31,000	Â	Â
Indirect labor cost	28,000	Â	Â
Utilities expense	12,000	Â	Â
Insurance expense	8,000	Â	803,000
Net loss	Â	Â	$ (23,000)

 

 

 

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 examin- ing other manufacturing cost data, you have acquired additional information as follows.

 

1.   Inventory balances at the beginning and end of October were:

 

 

 

Â	October 1	Â	October 31
Raw materials	$18,000	Â	$29,000
Work in process	16,000	Â	14,000
Finished goods	30,000	Â	45,000

 

2.   Only 75% of the utilities expense and 60% of the insurance expense apply to factory opera- tions. 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

PROBLEMS: SET B