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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 Income Statement For the Month Ended August 31, 2012
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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