Question

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.

Answer 1

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