Question

The following events took place for Video Wave Manufacturing Company during January 2016, the first month of its operations as a producer of digital video monitors:

	a. Purchased $137,200 of materials.
	b. Used $94,320 of direct materials in production.
	c. Incurred $180,640 of direct labor wages.
	d. Incurred $212,320 of factory overhead.
	e. Transferred $427,800 of work in process to finished goods.
	f. Sold goods with a cost of $360,250.
	g. Earned revenues of $655,000.
	h. Incurred $86,160 of selling expense.
	i. Incurred $70,250 of administrative expense.

	Required:
	Using the information given, complete the following: A. Prepare the January 2016 income statement for Video Wave Manufacturing Company. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries. B. Determine the inventory balances at the end of the first month of operations.

Amount Descriptions

Amount Descriptions
Administrative expenses
Cost of goods sold
Gross profit
Net income
Sales
Selling expenses

Income Statement

Using the information given, prepare the January 2016 income statement for Video Wave Manufacturing Company. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.

Video Wave Manufacturing Company

Income Statement

For the Month Ended January 31, 2016

1
2
3
4	Operating expenses:
5
6
7	Total operating expenses
8

Inventory Balances

Using the information given, determine the inventory balances at the end of the first month of operations.

	Materials
	Work in process
	Finished goods

Answer 1

Solution (A):

Video Wave Manufacturing Company

Income Statement

For the Month Ended January 31, 2016

1	Sales		$655,000
2	Cost of goods sold		$360,250
3	Gross Profit		$ 294,750
4	Operating expenses:
5	Selling expenses	$86,160
6	Administrative expenses	$70,250
7	Total operating expenses		156,410
8	Net Income		138,340

Solution (B):

Inventory Balances at the end of the first month of operations

Materials	=Material purchased – Material used = $137,200- $94,320 =$ 42,880 (Answer)
Work in process	= Beginning work in process inventory + Manufacturing cost - Transferred work in process to finished goods = Beginning work in process inventory + (Direct Material + Direct labor + Factory overhead) - Transferred work in process to finished goods = $ 0 + ($94,320 + $180,640 + $212,320) - $427,800 = $487,280 - $ 427,800 =$ 59,480 (Answer)
Finished goods	= Transferred work in process to finished goods – Cost of goods sold =$427,800 -$360,250 = $ 67,550 (Answer)