Swift Company was organized on March 1 of the current year. After five months of
ID: 2544364 • Letter: S
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Swift Company was organized on March 1 of the current year. After five months of startup losses management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. Augusts income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses $ 460,000 Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising $ 12,600 15,000 68,000 23,000 171,000 18,000 2,200 41,000 34,000 82,700 467,500 Net loss $ (7,500) The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam has had little $7,500 loss for August, Swift's president stated, “I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way, I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being experience in manufacturing operations. After seeing the Additional information about the company follows: a. Some 50% of the utilities cost and 80% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities. b. Inventory balances at the beginning and end of August were as follows Raw materials ork in process Finished goods August 1 August 31 $ 18,000 15,000 16,000 46,000 8,000 41,000 c. Only 75% of the rent on facilities applies to factory operations, the remainder applies to selling and administrative activities whether the company should look for a buyer for its assets Required The president has asked you to check over the income statement and make a recommendation about 1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured in good form for August.Explanation / Answer
Swift Company Schedule of Cost of Goods Manufactured For the Month Ended August 31 Direct materials: Raw materials inventory, August 1 $18,000.00 Add: Purchases of raw materials $171,000.00 Raw materials available for use $189,000.00 Deduct: Raw materials inventory, August 31 -$15,000.00 Raw materials used in production $174,000.00 Direct labor $68,000.00 Manufacturing overhead: Indirect labor cost $12,600.00 Utilities (50% × $15,000) $7,500.00 Depreciation, factory equipment $23,000.00 Insurance (80% × $2200) $1,760.00 Rent on facilities (75% × $41,000) $30,750.00 Total overhead costs $75,610.00 Total manufacturing costs $317,610.00 Add: Work in process inventory, August 1 $8,000.00 Deduct: Work in process inventory, August 31 -$16,000.00 Cost of goods manufactured $309,610.00 Swift Company Income Statement For the Month Ended August 31 Sales $460,000.00 Less cost of goods sold: Finished goods inventory, August 1 $41,000.00 Add: Cost of goods manufactured $309,610.00 Goods available for sale $350,610.00 Deduct: Finished goods inventory, August 31 -$46,000.00 $304,610.00 Gross margin $155,390.00 Less operating expenses: Utilities (50% × $15,000) $7,500.00 Depreciation, sales equipment $18,000.00 Insurance (20% × $2200) $440.00 Rent on facilities (25% × $41,000) $10,250.00 Selling and administrative salaries $34,000.00 Advertising $82,700.00 $152,890.00 Net operating income $2,500.00 c) No The financial condition of the company looks much better and selling the company may not be advisable.
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