Financial Statements of a Manufacturing Firm The following events took place for Focault Inc. during July 20Y2, the first month of operations as a producer of road bikes:
Purchased $320,000 of materials
Used $275,000 of direct materials in production
Incurred $236,000 of direct labor wages
Applied factory overhead at a rate of 75% of direct labor cost
Transferred $652,000 of work in process to finished goods
Sold goods with a cost of $630,000
Sold goods for $1,120,000
Incurred $252,800 of selling expenses
Incurred $100,000 of administrative expenses
A. Prepare the July income statement for Focault. Assume that Focault uses the perpetual inventory method.
Focault Inc.
Income Statement
For the Month Ended July 31

Revenues $
Cost of Goods Sold
Gross Profit $
Selling and administrative expenses:
Selling Expenses $
Administrative Expenses
Total selling and administrative expenses
Income from Operations $
B. Determine the inventory balances at the end of the first month of operations.
Materials inventory, July 31
Work in process inventory, July 31
Finished goods inventory, July 31

Required A.

Focault Inc.

Income Statement  For the Month Ended July 31

Revenues                                                        $1,120,000

Cost of Goods Sold                                         ($630,000)

Gross Profit                                                      $ 490,000

Selling and administrative expenses:

Selling Expenses                                           ($252,800)

Administrative Expenses                                ($100,000)

Income from Operations                               $137,2000

Required B

Materials inventory, July 31  =  $45,000

Work in process inventory, July 31  =  $36,000

Finished goods inventory, July 31 = $22,000

Explanation:

Raw Materials T - Account

Debit :

Purchases                    $320,000

Totals                           $320,000

Credit:

Used in Production     $275,000

Ending Balance             $45,000

Totals                           $320,000

Manufacturing Cost Schedule

Raw Materials                                               $275,000

Direct labor                                                   $236,000

Overheads ($236,000 × 75%)                      $177,000

Total Manufacturing Cost                            $688,000

Less Cost Transferred to Finished Goods ($652,000)

Ending Work In Process                                 $36,000

Finished Goods T - Account

Debit :

Cost of Goods Manufactured                      $652,000

Totals                                                             $652,000

Credit :

Trading Account : Cost of Sales                 ($630,000)

Ending Balance                                               $22,000

Totals                                                             $652,000

(a) when insurance is obtained through a reciprocal insurer, the insureds are sharing the risk of loss with other subscribers of that reciprocal.

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a. $48.75

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