Question

1. Financial Statements of a Manufacturing Firm

   The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes:

   •	Purchased $398,300 of materials.
   •	Used $342,500 of direct materials in production.
   •	Incurred $296,000 of direct labor wages.
   •	Applied factory overhead at a rate of 75% of direct labor cost.
   •	Transferred $826,100 of work in process to finished goods.
   •	Sold goods with a cost of $784,700.
   •	Revenues earned by selling bikes, $1,404,600.
   •	Incurred $337,400 of selling expenses.
   •	Incurred $125,600 of administrative expenses.

   a. Prepare the income statement for Rushmore Biking Inc. for the month ending February 28. Assume that Rushmore Biking Inc. uses the perpetual inventory method.

   Rushmore Biking Inc.
   Income Statement
   For the Month Ended February 28
   		$
   		$
   Selling and administrative expenses:
   	$
   Total selling and administrative expenses
   		$

   b. Determine the inventory balances on February 28, the end of the first month of operations.

   Materials inventory, February 28	$
   Work in process inventory, February 28	$
   Finished goods inventory, February 28	$

Answer 1

a.

Rushmore Biking Inc., Income Statement For The Month Ended February 28
Revenue		$1,404,600
Less: Cost of goods sold		784,700
Gross margin		619,900
Less: Selling and administrative expenses:
Selling expenses	$337,400
Administrative expenses	125,600
Total selling and administrative expenses		463,000
Net income		$156,900

b.

Material inventory, February 28 = Material purchased - Material used in production

Material inventory, February 28 = $398,300 - 342,500 = $55,800

Work in process, February 28 = Total manufacturing costs - Cost of finished goods transferred

Work in process, February 28 = [$342,500+296,000+222,000(296,000*75%)] - $826,100

Work in process, February 28 = $860,500 - 826,100 = $34,400

Finished goods inventory, February 28 = Cost of finished goods transferred - Cost of goods sold

Finished goods inventory, February 28 = $826,100 - 784,700 = $41,400