Accounting for management

On the 1st of July 2016 Cam Rollins set up his own company, Twister Pty Ltd, to manufacture and distribute his own range of gym equipment. Cam recently graduated with a degree in exercise and sports science and believed he had a very good plan for his own designed exercise equipment. Cam also had some business experience so he knew how important it was to keep accurate accounting records from which to prepare his reports. At the end of his first year of operations, 30th June 2017, Cam prepared the following income statement which he has submitted to you for checking:

Sales

585,000

Less operating expenses:

Purchases of raw materials

260,000

Purchases of factory supplies

13,000

Wages for factory staff directly involved in making the gym equipment

97,500

Wages for other factory staff

13,000

Administrative wages

13,000

Sale staff salaries

28,600

Advertising

6,500

Administrative expenses

10,400

Factory cleaning costs

6,500

Rent

32,500

Electricity

5,850

Factory equipment - purchase cost

182,000

Office equipment - purchase cost

13,000

Sales manager vehicle - purchase cost

19,500

Production manager's salary

52,000

Total operating expenses

759 850

Net Loss

(174 850)

After reviewing his company's first year income statement, Cam was disappointed with the result. With his high level of expenses, the cash position was also in deficit. Cam has an appointment with the bank manager to go through is financial reports and to discuss whether his bank overdraft facility should be extended.

Additional Information:

The non-current assets of Twister Pty Ltd are expected to have an estimated useful life of five years with no salvage value.

The factory occupies 70% of the rented facility, the administration area 10% and the sales department 20%.

Cam Rollins spends half of his time in the role of Production Manager and the remaining time equally across the sales and administration departments as manager.

Gas and electricity are essentially all consumed by the factory.

As at 30th June Twister had the following inventories:

Raw Materials 26,000

Work in Progress 52,000

Finished goods 72,000

Required:

a) Prepare a report for Cam Rollins outlining the errors he has made and the what the correct treatment should have been. (showing in a table may be appropriate)

b) Prepare a Cost of Goods Manufactured Statement and a corrected Income Statement for the year. use Excel to prepare these statements.