Question

Problem 2-44A

Tombert Company is a manufacturer of computers. Its controller resigned in October 2016. An inexperienced assistant accountant has prepared the following income statement for the month of October 2016.

TOMBERT COMPANY Income Statement For the Month Ended October 31, 2016
Sales (net)				$ 784,600
Less: Operating expenses
Raw materials purchases		$264,450
Direct labour cost		190,900
Advertising expense		89,300
Selling and administrative salaries		74,450
Rent on factory facilities		60,750
Depreciation on sales equipment		44,700
Depreciation on factory equipment		31,800
Indirect labour cost		28,300
Utilities expense		12,800
Insurance expense		8,300		805,750
Net Loss				$(21,150)

Prior to October 2016, the company had been profitable every month. The company’s president is concerned about the accuracy of the income statement. As his friend, he has asked you to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired the following additional information.

1. Inventory balances at the beginning and end of October were as follows:

		October 1		October 31
Raw materials		$17,500		$29,600
Work in process		16,500		14,500
Finished goods		30,900		45,700

2. Only 80% of the utilities expense and 51% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Calculate the following:

1. Prepare a schedule of the cost of goods manufactured for October 2016. (Round answers to 0 decimal places, e.g. 125.)

TOMBERT COMPANY Cost of Goods Manufactured Schedule For the Month Ended October 31, 2016

2.

Prepare a correct income statement for October 2016. (Round answers to 0 decimal places, e.g. 125. Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

TOMBERT COMPANY Income Statement For the Month Ended October 31, 2016

Answer 1

Part 1

TOMBERT COMPANY
Cost of Goods Manufactured Schedule
For the Month Ended October 31, 2016
Work in process inventory, beginning			16,500
Direct materials
Raw materials inventory, beginning	17,500
Add: Raw materials purchases	264,450
Raw materials available for use	281,950
Less: Raw materials inventory, ending	29,600
Direct materials used		252,350
Direct labor		190,900
Manufacturing overhead
Indirect labor	28,300
Factory insurance (8300*51%)	4,233
Factory depreciation	31,800
Factory utilities (12800*80%)	10,240
Factory rent	60,750
Total manufacturing overhead		135,323
Total manufacture cost			578,573
Total cost to be accounted for			595,073
Less: Work in process inventory, ending			14,500
Cost of goods manufactured			580,573

Part 2

TOMBERT COMPANY
Income statement
For the Month Ended October 31, 2016
Net sales revenue			784,600
Cost of goods sold
Add: Finished goods inventory, beginning		30,900
Cost of goods manufactured		580,573
Cost of goods available for sale		611,473
Less: Finished goods inventory, ending		45,700
Cost of goods sold			565,773
Gross profit			218,827
Operating expenses
Advertising expense		89,300
Selling and administrative salaries		74,450
Depreciation on sales equipment		44,700
Utilities expense (12800-10240)		2,560
Insurance expense (8300-4233)		4,067
Total operating expenses			215,077
Net income			3,750