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Phillips Company 780000

Price: $2.50


Phillips Company is a manufacturer of computers. Its controller resigned in October
2014. An inexperienced assistant accountant has prepared the following income statement
for the month of October 2014.


Phillips Company
Income Statement
For the Month Ended October 31, 2014
Sales revenue  780,000
Less: Operating expenses 
Raw materials purchases   264,000
Direct labor cost   190,000
Advertising expense   90,000
Selling and administrative salaries   75,000
Rent on factory facilities   60,000
Depreciation on sales equipment   45,000
Depreciation on factory equipment   31,000
Indirect labor cost   28,000
Utilities expense   12,000
Insurance expense   8,000  803,000
Net loss   (23,000)

Prior to October 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 October were:


  1-Oct 31-Oct
Raw materials   18,000  29,000
Work in process   16,000  14,000
Finished goods   30,000  45,000

2. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations.
The remaining amounts should be charged to selling and administrative activities.

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

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