Assignment #1

(KMC) has just completed operations for January 2021. Karl Madison, the president of KMC, is confused by the income statement for the month, which shows a large loss. The companys income statement follows:

KMC

Income Statement

For the Month Ended January 31^st, 2021

Sales $500,000

Less operating expenses:

Insurance expired during the month $14,000

Utilities 110,000

Direct factory labour costs 160,000

Selling and administrative salaries 32,000

Indirect factory labour costs 12,000

Depreciation on factory equipment 16,000

Raw materials purchased during the month 135,000

Rent on facilities 40,000 519,000

Net loss $(19,000)

Karl has asked you to assist in preparing a corrected income statement for the month of January. The following additional information is available:

1. KMC is a manufacturing firm that makes wooden picnic tables for sale to various retail customers.
2. Some 65 percent of the expired insurance and 85 percent of the utilities cost apply to manufacturing operations; the remaining amounts apply to selling and administrative activities.
3. Inventory balances at the beginning and end of the month were:

4. January 1, 2021 January 31, 2021

   Raw materials $18,000 $36,000

   Work in process 2,000 8,000

   Finished goods 44,000 54,000

5. Only 75 percent of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.
6. All materials purchased by KMC are used directly in the manufacturing process. Indirect materials are insignificant in amount and can be disregarded.

Required:

1. Prepare a schedule of cost of goods manufactured in good form for the month ended January 31, 202
2. Prepare a schedule of the cost of goods sold in good form for the month ended January 31, 2021.
3. Prepare a correct income statement for the month ended January 31, 2021.