Financial Statements of a Manufacturing Firm The following events took place for
ID: 2447699 • Letter: F
Question
Financial Statements of a Manufacturing Firm
The following events took place for Kirchhoff Inc. during April 2014, the first month of operations as a producer of road bikes:
Purchased $320,000 of materials.
Used $275,000 of direct materials in production.
Incurred $236,250 of direct labor wages.
Applied factory overhead at a rate of 80% of direct labor cost.
Transferred $670,000 of work in process to finished goods.
Sold goods with a cost of $635,000.
Sold goods for $1,125,000.
Incurred $275,000 of selling expenses.
Incurred $100,000 of administrative expenses.
a. Prepare the April income statement for Kirchhoff. Assume that Kirchhoff uses the perpetual inventory method.
Kirchhoff Inc.
Income Statement
For the Month Ended April 30, 2014
Cost of Goods Sold
Finished Goods
Gross Profit
Income from Operations
Factory overhead
Revenues
Correct 4 of Item 1
Correct 5 of Item 1
Cost of Goods Manufactured
Cost of Goods Sold
Income from Operations
Materials
Revenues
Selling Expenses
Correct 6 of Item 1
Correct 7 of Item 1
Administrative Expenses
Cost of Goods Sold
Gross Profit
Income from Operations
Revenues
Work in Process
Correct 8 of Item 1
Correct 9 of Item 1
Cost of Goods Sold
Factory Overhead
Finished Goods
Materials
Selling Expenses
Work in Process
Correct 10 of Item 1
Correct 11 of Item 1
Administrative Expenses
Direct Labor
Materials
Revenues
Work in Process
Correct 12 of Item 1
Correct 13 of Item 1
Correct 14 of Item 1
Cost of Goods Manufactured
Finished Goods
Income from Operations
Work in Process
Correct 15 of Item 1
Correct 16 of Item 1
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a. Both product and period costs must be reported on the income statement and are necessary to measure net operating income.
Learning Objective 2.
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Solution
b. Determine the inventory balances at the end of the first month of operations.
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a. Prepare the April income statement for Kirchhoff. Assume that Kirchhoff uses the perpetual inventory method.
Kirchhoff Inc.
Income Statement
For the Month Ended April 30, 2014
Cost of Goods Sold
Finished Goods
Gross Profit
Income from Operations
Factory overhead
Revenues
Correct 4 of Item 1
$Correct 5 of Item 1
Cost of Goods Manufactured
Cost of Goods Sold
Income from Operations
Materials
Revenues
Selling Expenses
Correct 6 of Item 1
Correct 7 of Item 1
Administrative Expenses
Cost of Goods Sold
Gross Profit
Income from Operations
Revenues
Work in Process
Correct 8 of Item 1
$Correct 9 of Item 1
Cost of Goods Sold
Factory Overhead
Finished Goods
Materials
Selling Expenses
Work in Process
Correct 10 of Item 1
$Correct 11 of Item 1
Administrative Expenses
Direct Labor
Materials
Revenues
Work in Process
Correct 12 of Item 1
Correct 13 of Item 1
Correct 14 of Item 1
Cost of Goods Manufactured
Finished Goods
Income from Operations
Work in Process
Correct 15 of Item 1
$Correct 16 of Item 1
Explanation / Answer
Answer:a Income statement:
Answer:b
Materials Inventory is $45,000 (320,000-275,000)
Beginning Materials + Purchased Materials - used materials = ending materials inventory
Work in Progress Inventory is $30250 (275,000+$236,250+189,000) - 670,000
Beginning WIP Inventory + Cost of Goods Manufactured - WIP Inventory transferred out = Ending WIP inventory
Finished Goods Inventory is $35,000 (670,000-635,000)
Beginning Finished Goods Inventory + WIP Inventory transferred in - Cost of Goods Sold = Finished Goods Inventory.
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