The following events took place for Salsa Inc. during May 2010, the first month

Question

The following events took place for Salsa Inc. during May 2010, the first month of operations as a producer of road bikes:
Purchased $244,000 of materials.
Used $210,000 of direct materials in production.
Incurred $180,000 of direct labor wages.
Applied factory overhead at a rate of 75% of direct labor cost.
Transferred $510,000 of work in process to finished goods.
Sold goods with a cost of $485,000.
Sold goods for $870,000.
Incurred $210,000 of selling expenses.
Incurred $75,400 of administrative expenses.
Negative and subtractive numbers are to be entered as positive numbers.
a. Prepare the May income statement for Salsa. Assume that Salsa uses the perpetual inventory method.

SALSA INC.
Income Statement
For the Month Ended May 31, 2010







b. Determine the inventory balances at the end of the first month of operations.

Materials inventory, May 31 $
Work in process inventory, May 31 $
Finished goods inventory, May 31 $

Explanation / Answer

INCOME statement

Revenues ....................................... 870000

cost of goods sold............................................... 485000

GrossProfit .......................................385000

selling expenses..............................210000

Adminstrative expenses.................75400............285400

Incomefrom operations.........................................99600

b) materials inventory:

Purchased materials..........................244000

Used materials in production.............................210000

Materials inventory.............................34000

WORK PROCESS INVENTORY:

Materials used in production.............210000

Direct labour.........................................180000

Factory overhead.................................135000

Transfered to finished goods...................................510000

WORK processsinventory..................15000

FINISHED GOODS INVENTORY:

Transfered to finished goods...............510000

Cost of goods sold ................................................485000

Finished goods inventory.....................25000

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