The following events took place for Fed Inc. during October 2012, the first mont

Question

The following events took place for Fed Inc. during October 2012, the first month of operations as a producer of road bikes:
Purchased $427,000 of materials.
Used $367,500 of direct materials in production.
Incurred $315,000 of direct labor wages.
Applied factory overhead at a rate of 80% of direct labor cost.
Transferred $892,500 of work in process to finished goods.
Sold goods with cost of $848,750.
Sold goods for $1,500,000.
Incurred $367,500 of selling expenses.
Incurred $131,950 of administrative expenses.
a. Prepare the October income statement for Fed. Assume that Fed uses the perpetual inventory method.
b. Determine the inventory balances at the end of the first month of operations.

Explanation / Answer

sol (1) Income Statement LAE Manufacturing Company For Month Ended March 31 so Revenue: $250,000 Cost of Goods Sold: 110,000 Gross Profit: 140,000 LESS Selling Expenses: 64,000 LESS Admin Expenses: 28,000 Net Income: $48,000 for (2) Materials Inventory is $12,000 (52,000-40,000) Beginning Materials + Purchased Materials - used materials = ending materials inventory Work in Progress Inventory is $44,000 (40,000+60,000+84,000) - 140,000 Beginning WIP Inventory + Cost of Goods Manufactured - WIP Inventory transferred out = Ending WIP inventory so Finished Goods Inventory is $30,000 (140,000-110,000) Beginning Finished Goods Inventory + WIP Inventory transferred in - Cost of Goods Sold = Finished Goods Inventory.

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