Essay is always a headache!
Send us your paper details now
We'll find the best professional writer for you!

Phillips Company is a manufacturer of computers. Its controller resigned in October 2014.

Phillips Company is a manufacturer of computers. Its controller resigned in October 2014.

P1-5A Phillips Company is a manufacturer of computers. Its controller resigned in October 2014. An inexperienced assistant accountant has prepared the following income statement for the month of October 2014.
PHILLIPS COMPANY
Income Statement
For the Month Ended October 31, 2014
Sales (net)

$780,000
Less: Operating expenses

Raw materials purchases
$264,000

Direct labor cost
190,000

Advertising expense
90,000

Selling and administrative salaries
75,000

Rent on factory facilities
60,000

Depreciation on sales equipment
45,000

Depreciation on factory equipment
31,000

Indirect labor cost
28,000

Utilities expense
12,000

Insurance expense
8,000
803,000
Net loss

($23,000)

Prior to October 2014, the company had been profitable every month. The company’s president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows.

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

October 1
October 31
Raw materials
$18,000
$29,000
Work in process
16,000
14,000
Finished goods
30,000
45,000

2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Instructions:
(a) Prepare a schedule of cost of goods manufactured for October 2014.
(b) Prepare a correct income statement for October 2014.

Leave a Reply

Your email address will not be published. Required fields are marked *