B&B Manufacturing Co. was organized on January 1 of the current year, Outside investors who financed the business stipulated that the company must show a profit by sixth month or the financing will be stopped. B&B reported losses for the first four months, but expected to show a profit in the fifth month (current). After reviewing the income statement for the fifth month (May), the president, Craig was disappointed with the performance and called an employee meeting. At the meeting, Craig informed the employees that, on the basis of the performance for the first five months and, in particular, month of May, he saw very little hope of a profit by the sixth month. He also informed the employees that they should prepare to close the business. After the meeting, the controller quit, leaving you in charge of the accounting function.

The latest Financial Information is as follows:

Income Statement For the month ended May 31 Sales 325,000 Less: Raw Materials purchased 140,000 Direct Labor 75,000 Indirect Labor 10,000 Utilities 25,000 Depreciation 30,000 Insurance 15,000 Rent 12,000 Selling and administrative 30,000 Advertising 25,000 (362,000) Net Loss (37,000) Inventories Beginning Ending Raw Materials 15,000 18,000 Work in Process 20,000 29,000 Finish Good 35,000 30,000