Orinoco Inc. produces and sells wireless reading devices. A competitor, Nile Electronic Products (NEP), sells similar wireless reading devices that it purchases at wholesale from Sonex for $97 each. Both sell the devices for $180.

In 2012, Orinoco produced 10,000 devices from Sonex at the following costs:

Assume that Orinoco had no beginning inventory of direct materials. There was no beginning inventory of finished devices, but ending inventory consisted of 1,000 finished devices. Ending work-in-process inventory was negligible.

Each company sold 9,000 devices for $1,620,000 in 2012 and incurred the following selling and administrative costs:

Sales salaries and commissions .........................$105,000
Depreciation on retail store ....................................40,000
Advertising ................................................................25,000
Other .........................................................................15,000
Total selling and administrative cost .................$185,000

1. Prepare the inventories section of the balance sheet for December 31, 2012 for Nile.
2. Prepare the inventories section of the balance sheet for December 31, 2012 for Orinoco.
3. Prepare an income statement for the year 2012 for Nile. Include the following accounts in the cost of goods sold section: Beginning inventory, Purchases, Cost of goods available for sale, Less ending inventory, Cost of goods sold.
4. Using the cost of goods sold format in Exhibit 4-4 as a model, prepare an income statement for the year 2012 for Orinoco.
5. Summarize the differences between the financial statements of Nile, a merchandiser, and Orinoco, a manufacturer.
6. What purpose of a cost management system is being served by reporting the items in requirements 1 through 4?

Exhibit 4-4

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Direct materials purchased $570,000 $530,000 Direct materials used 290,000 Direct labour Factory Overhead: $ 50,000 Depreciation Indirect labour 60,000 Other 40,000 150,000 Total cost of production $970,000 Sales (8,000,000 units @ $10) Cost of goods manufactured and sold: Beginning finished- goods inventory Cost of goods $80,000,000 manufactured: