Question

I. Barrett Company has completed all operating budgets other the income statement for 2017.

   Selected data from these budgets follows.

            Sales revenue: $300,000                                     

            Purchases of raw materials: $145,000               

            Ending inventory of raw materials: $15,000     

            Direct labor: $40,000                                             

            Interest expense: $1,000

            Principal payment on note: $2,000

            Dividends declared: $2,000

            Income tax rate: 30%

            Manufacturing overhead: $73,000, including $3,000 of depreciation expense

            Selling and administrative expenses: $36,000 including depreciation expenses of $1,000

            Other information:

            Assume that the number of units produced equals the number sold.

            Tear-end accounts receivable: 4% of 2017 sales.

            Year-end accounts payable: 50% of ending inventory of raw materials.

Interest, direct labor, manufacturing overhead, and selling and administrative expenses other

           than depreciation are paid as incurred. Dividends declared and income taxes for 2017 will not   

           be paid until 2018.

Answer 1

Since beginning balances of finished goods inventory and raw material inventory is not given, it is taken as zero.

Income Statement
Sales Revenue		$          300,000
Cost of Goods Sold
Direct Material used	$                 130,000
Direct Labor	$                   40,000
Manufacturing Overhead	$                   73,000
Total Cost of Goods Sold		$          243,000
Gross Profit		$             57,000
Selling and administrative expenses		$             36,000
Operating income		$             21,000
Interest Expense		$               1,000
Income before income tax		$             20,000
Income tax expense @ 30%		$               6,000
Net Income		$             14,000