Bell Company, a manufacturer of audio systems, started its production in October 2014. For the preceding 3 years, Bell had been a retailer of audio systems. After a thorough survey of audio system markets, Bell decided to turn its retail store into an audio equipment factory.

Raw materials cost for an audio system will total $74 per unit. Workers on the production lines are on average paid $12 per hour. An audio system usually takes 5 hours to complete. In addition, the rent on the equipment used to assemble audio systems amounts to $4,900 per month. Indirect materials cost $5 per system. A supervisor was hired to oversee production; her monthly salary is $3,000.

Factory janitorial costs are $1,300 monthly. Advertising costs for the audio system will be $9,500 per month. The factory building depreciation expense is $7,800 per year. Property taxes on the factory building will be $9,000 per year.

Instructions

(a)

Prepare an answer sheet with the following column headings.

	Product Costs
Cost Item	Direct Materials	Direct Labor	Manufacturing Overhead	Period Costs

Assuming that Bell manufactures, on average, 1,500 audio systems per month, enter each cost item on your answer sheet, placing the dollar amount per month under the appropriate headings. Total the dollar amounts in each of the columns.

DM $111,000

DL $ 90,000

MO $ 18,100

PC $ 9,500

(b)

Compute the cost to produce one audio system.

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Phillips Company is a manufacturer of computers. Its controller resigned in October 2014. An inexperienced assistant accountant has prepared the following income statement for the month of October 2014.

PHILLIPS COMPANY Income Statement For the Month Ended October 31, 2014
Sales revenue		$780,000
Less: Operating expenses
Raw materials purchases	$264,000
Direct labor cost	190,000
Advertising expense	90,000
Selling and administrative salaries	75,000
Rent on factory facilities	60,000
Depreciation on sales equipment	45,000
Depreciation on factory equipment	31,000
Indirect labor cost	28,000
Utilities expense	12,000
Insurance expense	8,000	803,000
Net loss		$(23,000)

Prior to October 2014, the company had been profitable every month. The company's president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. After examining other manufacturing cost data, you have acquired additional information as follows.

1.

Inventory balances at the beginning and end of October were:

	October 1	October 31
Raw materials	$18,000	$29,000
Work in process	16,000	14,000
Finished goods	30,000	45,000

2.

Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Instructions

(a)	Prepare a schedule of cost of goods manufactured for October 2014. CGM $577,800
(b)	Prepare a correct income statement for October 2014. NI $ 1,000