Question

In: Accounting

Chaos Manufacturing had the following financial information for the year ended December 31 2018: Inventory Balances:   ...

Chaos Manufacturing had the following financial information for the year ended December 31 2018:

Inventory Balances:                Beginning                    Ending

Work in Progress                    $ 90,000                      $ 80,000

Finished Goods                       $ 77,000                      $ 67,000

Raw Materials                         $ 10,000                      $ 30,000

During the year, the budgeted and actual costs were as follows:

Note

      Actual

Raw Materials

1

     290,000

Labour

2

     518,000

Depreciation Factory Equipment

        72,000

Depreciation Office Equipment

        24,000

Building Rent

3

      100,000

Maintenance – Factory Equipment

         40,000

Utilities – Electrical

4

     180,000

Utilities - Gas

5

        90,000

Utilities - Telecom

6

        22,000

Sales Commissions

        30,000

Advertising

      20,000

Shipping

7

        16,000

Total

1,402,000

Sales for the year were $1,500,000

Note 1 – Raw material

90% of raw materials are traced directly to specific jobs, and the remaining 10% of raw materials are used throughout the production process and not traced. $290,000 in materials was purchased in the year.

Note 2 – Labour

Direct Labour $270,000 + Factory Salaries $85,000 + Head Office Salaries $163,000 = $518,000

Note 3 – Building Rent

The building is shared between the factory and the administrative office. 68% of the building is related to the factory, and the remaining 32% is related to the administrative office.

Note 4 – Utilities Electrical

90% of these costs are related to the factory, and 10% of these costs are related to the administrative office.

Note 5 – Utilities - Gas

All of the Gas is used to heat production equipment.

Note 6 – Utilities - Telecom

All of the Telecom costs are for sales people.

Note 7 – Shipping

All of the shipping costs are to ship finished goods to customers.

Required:

Prepare an income statement. You may include a schedule of Cost of Goods Manufactured and Cost of Goods Sold as separate schedule or as part of the Income Statement.

Solutions

Expert Solution

Income Statement
Sales Revenue $     1,500,000
Cost of goods sold $     1,037,000
Gross Profit $        463,000
Operating Expenses
Salaries $         163,000
Depreciation Expense $           24,000
Building Rent $           32,000
Utilities - Electrical $           18,000
Utilities - Telecom $           22,000
Sales Commission $           30,000
Advertising $           20,000
Shipping $           16,000
Total Operating Expenses $         325,000
Net Operating Income (Loss) $        138,000
Schedule of Cost of Goods manufactured
Direct Materials
Raw Material, Beginning Inventory $           10,000
Add: Purchases $         290,000
Total Raw Material Available $         300,000
Deduct : Raw Material in inventory, ending $           30,000
Raw Material Used $         270,000
Less Indirect Materials $           27,000
Direct Material used in production $         243,000
Direct Labor $         270,000
Manufacturing Overhead
Factory Salaries $           85,000
Depreciation Expense $           72,000
Building Rent $           68,000
Indirect Materials $           27,000
Utilities - Electrical $         162,000
Utilities - Gas $           90,000 $         504,000
Total Manufacturing Costs $     1,017,000
Add: Beginning Work in Process Inventory $           90,000
$     1,107,000
Deduct: Ending Work in Process Inventory $           80,000
Cost of Goods Manufactured $     1,027,000
Cost of Goods Sold
Finished Goods Inventory, Beginning $           77,000
Add: Cost of Goods Manufactured $     1,027,000
Cost of Goods Available for sale $     1,104,000
Finished Goods Inventory, Ending $           67,000
Cost of Goods Sold $     1,037,000

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