Question

Financial Statements of a Manufacturing Firm

The following events took place for Digital Vibe Manufacturing Company during January, the first month of its operations as a producer of digital video monitors:

1. Purchased $48,700 of materials
2. Used $37,500 of direct materials in production.
3. Incurred $56,000 of direct labor wages.
4. Incurred $78,900 of factory overhead.
5. Transferred $131,000 of work in process to finished goods.
6. Sold goods for $234,200.
7. Sold goods with a cost of $104,200.
8. Incurred $59,900 of selling expenses.
9. Incurred $26,300 of administrative expense.

Using the information given, complete the following:

a. Prepare the January income statement for Digital Vibe Manufacturing Company.

Digital Vibe Manufacturing Company
Income Statement
For the Month Ended January 31
		$
		$
Operating expenses:
	$
Total operating expenses
		$

b. Determine the Materials Inventory, Work in Process Inventory, and Finished Goods Inventory balances at the end of the first month of operations.

Digital Vibe Manufacturing Company
Inventory Balances
For the Month Ended January 31
Inventory balances on January 31:
Materials	$
Work in process
Finished goods

Answer 1

a. Prepare the January income statement for Digital Vibe Manufacturing Company.

Answer:

Digital Vibe Manufacturing Company
Income Statement
For the Month Ended January 31
Revenues		234,200
Cost of goods sold		104,200
Gross Profit		130,000
Less: Operating Expenses
Selling Expenses	59,900
Administrative expenses	26,300
Total operating expenses		86,200
Net Income		43,800

Calculation:

To prepare the income statement, we need to find the gross profit first. Revenue and cost of goods sold are given in the question. So we need to deduct the cost of goods sold from revenues to get the gross profit. Then we need to find the total operating expenses. There are two operating expenses provided in the question. They are Selling Expenses and Administrative expenses. After adding up both of that operating expenses and deducting it from the gross profit will give the net income for period ended January 31.

b. Determine the Materials Inventory, Work in Process Inventory, and Finished Goods Inventory balances at the end of the first month of operations.

Answer:

Digital Vibe Manufacturing Company
Inventory Balances
For the Month Ended January 31
Inventory balances on January 31:
Materials	11,200
Work in Process	41,400
Finished goods	26,800

Calculation:

To calculate the Materials balance, we need to find the difference of the materials purchased and materials used

Direct materials, Purchases	48,700
Less: Direct materials, used	37,500
Direct materials, ending	11,200

To calculate the Work in Process, we need to find the difference of the total manufacturing cost and cost of goods manufactured

Direct materials, used	37,500
Add: Direct Labour, incurred	56,000
Add: Factory overhead, incurred	78,900
Total manufacturing cost	172,400
Less: Cost of goods manufactured	131,000
Work in process, ending	41,400

To calculate the finished goods balance, we need to find the difference of the materials purchased and materials used

Cost of goods manufactured	131,000
Cost of goods Sold	104,200
Finished goods, ending	26,800