Financial Statements of a Manufacturing Firm The following events took place for

Question

Financial Statements of a Manufacturing Firm

The following events took place for Salsa Inc. during June 2016, the first month of operations as a producer of road bikes:

Purchased $302,900 of materials.

Used $260,500 of direct materials in production.

Incurred $224,000 of direct labor wages.

Applied factory overhead at a rate of 75% of direct labor cost.

Transferred $626,400 of work in process to finished goods.

Sold goods with a cost of $605,800.

Sold goods for $1,084,400.

Incurred $260,500 of selling expenses.

Incurred $96,900 of administrative expenses.

a. Prepare the June income statement for Salsa. Assume that Salsa uses the perpetual inventory method.

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

Salsa Inc. Income Statement For the Month Ended June 30, 2016 $ $ $ $

Explanation / Answer

Salsa Inc.

Income Statement

For the Month Ended June 30, 2016

Revenue

$ 1084400

(-) COGS

$ 605800

(-) Selling Exp

$ 260500

(-) Admn Exp

$ 96900

$ 357400

Net Income

$ 121200

Materials inventory, June 30

$ 42400

Work in process inventory, June 30

$ 26100

Finished goods inventory, June 30

$ 20600

Material Inventory, June 30 :-

Beginning Materials + Purchased Materials - used materials = ending materials inventory

= 0 + 302900 – 260500 = $ 42400

Work in process inventory, June 30 :-

Beginning WIP Inventory + Cost of Goods Manufactured - WIP Inventory transferred out = Ending WIP inventory

= 0 + (260500 + 224000 + (224000 * 75%)) – 626400 = $ 26100

Finished goods inventory, June 30 :-

Beginning Finished Goods Inventory + WIP Inventory transferred in - Cost of Goods Sold = Finished Goods Inventory.

= 0 + 626400 – 605800 = $ 20600

Salsa Inc.

Income Statement

For the Month Ended June 30, 2016

Revenue

$ 1084400

(-) COGS

$ 605800

(-) Selling Exp

$ 260500

(-) Admn Exp

$ 96900

$ 357400

Net Income

$ 121200

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