Ortiz Company is a manufacturer of toys. Its controller resigned in August 2012. An inexperienced assistant accountant has prepared the following income statement for the month of August 2012.
| ORTIZ COMPANY | ||
| Sales (net) | $675,000 | |
| Less: Operating expenses | ||
| Raw materials purchases | $220,000 | |
| Direct labor cost | 160,000 | |
| Advertising expense | 75,000 | |
| Selling and administrative salaries | 70,000 | |
| Rent on factory facilities | 60,000 | |
| Depreciation on sales equipment | 50,000 | |
| Depreciation on factory equipment | 35,000 | |
| Indirect labor cost | 20,000 | |
| Utilities expense | 10,000 | |
| Insurance expense | 5,000 | 705,000 |
| Net loss | ($30,000) | |
Prior to August 2012, 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 August were:
| 1-Aug | 31-Aug | |
| Raw materials | $19,500 | $35,000 |
| Work in process | 25,000 | 21,000 |
| Finished goods | 40,000 | 52,000 |
2. Only 60% of the utilities expense and 70% of the insurance expense apply to factory operations; the remaining amounts should be charged to selling and administrative activities.
Instructions
(a) Prepare a cost of goods manufactured schedule for August 2012.
(b) Prepare a correct income statement for August 2012.
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