Question

Financial Statements of a Manufacturing Firm The following events took place for Sorensen Manufacturing Company during January, the first month of its operations as a producer of digital video monitors:
a. Purchased $250,000 of materials.
b. Used $180,000 of direct materials in production.
c. Incurred $450,000 of direct labor wages.
d. Incurred $180,000 of factory overhead.
e. Transferred $760,000 of work in process to finished goods.
f. Sold goods for $1,200,000.
g. Sold goods with a cost of $675,000.
h. Incurred $215,000 of selling expense.
i. Incurred $125,000 of administrative expense.

Required:
a. Prepare the January income statement for Sorensen Manufacturing Company.
b. Determine the inventory balances at the end of the first month of operations.

Answer 1

Answer:

Required a.

January income statement for Sorensen Manufacturing Company

Sales                                  $1,200,000

Less Cost of Sales              ($675,000)

Gross Profit                          $525,000

Less Expenses :

Selling expense                  ($215,000)

Administrative expense     ($125,000)

Net Income / (Loss)             $185,000

Required b.

Work In Process Inventory  = $120,000

Finished Goods Inventory  = $85,000

Explanation:

Manufacturing Cost Schedule (Determination of Work In Process Inventory)

Direct Materials                                             $180,000

Indirect Materials  ($250,000 - $180,000)    $70,000

Direct Labor                                                  $450,000

Factory Overheads                                        $180,000

Total Cost of Goods Manufactured             $880,000

Less Transferred to finished goods           ($760,000)

Closing Work In Process Inventory             $120,000

Finished Goods T- Account (Determination of Finished Goods Inventory)

Debit :

Transferred from Work In Process              $760,000

Totals                                                            $760,000

Credit:

Trading Account                                          $675,000

Ending Finished Goods Inventory                $85,000

Totals                                                            $760,000