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Ortiz Company 675000

Price: $2.50

Ortiz Company is a manufacturer of toys. Its controller resigned in August 2014.
An inexperienced assistant accountant has prepared the following income statement for
the month of August 2014.

Ortiz Company
Income Statement
For the Month Ended August 31, 2014

Sales revenue
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 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 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

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

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