Question

Financial Statements of a Manufacturing Firm

The following events took place for Chi-Lite Inc. during June, the first month of operations as a producer of road bikes:

•	Purchased $481,100 of materials.
•	Used $413,700 of direct materials in production.
•	Incurred $356,000 of direct labor wages.
•	Applied factory overhead at a rate of 80% of direct labor cost.
•	Transferred $1,012,300 of work in process to finished goods.
•	Sold goods with a cost of $962,200.
•	Sold goods for $1,722,300.
•	Incurred $413,700 of selling expenses.
•	Incurred $154,000 of administrative expenses.

a. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method.

Chi-Lite Inc.
Income Statement
For the Month Ended June 30
Revenues		$
Cost of Goods Sold
Gross Profit		$
Selling and Administrative Expenses:
Selling Expenses	$
Administrative Expenses
Total Selling and Administrative Expenses
Income from Operations		$

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a. Both product and period costs must be reported on the income statement and are necessary to measure income.

b. Determine the inventory balances at the end of the first month of operations.

Materials inventory, June 30	$
Work in process inventory, June 30	$
Finished goods inventory, June 30	$

Answer 1

• All figures are filled from the available data.
• Requirement ‘a’

Chi-Lite Inc.
Income Statement
For the Month Ended June 30
Revenues		$         1,722,300.00
Cost of Goods Sold		$           962,200.00
Gross Profit		$           760,100.00
Selling and Administrative Expenses:
Selling Expenses	$                        413,700.00
Administrative Expenses	$                        154,000.00
Total Selling and Administrative Expenses		$           567,700.00
Income from Operations		$           192,400.00

• Requirement ‘b’

Workings

A	Material Purchased	$                                 481,100.00
B	Material Used	$                                 413,700.00
C = A - B	Material Inventory	$                                   67,400.00

A	Material Used	$                                 413,700.00
B	Direct Labor Wages	$                                 356,000.00
C = B x 80%	Factory Overhead applied	$                                 284,800.00
D = A+B+C	Total cost of Work in Process	$                             1,054,500.00
E	Inventory completed & Transferred	$                             1,012,300.00
F = D - E	Work in Process Inventory balance	$                                   42,200.00

A	Transferred from WIP	$                             1,012,300.00
B	Cost of Goods Sold	$                                 962,200.00
C = A - B	Finished Goods Inventory	$                                   50,100.00

Answers

Materials inventory, June 30	$                          67,400.00
Work in process inventory, June 30	$                          42,200.00
Finished goods inventory, June 30	$                          50,100.00