case 2-27

CASE 2-27 Missing Data; Income Statement, Schedule of Cost of Goods Manufactured |L02, LOS LO4, LOS "I was sure that when our battery hit the market it would be an instant success said Roger Strong founder and president of Solar Technology, Inc. But just look at the gusher of red ink for the first quarter It's obvious that we're better scientists then we are businesspeople. At this cute we'll be out of business within a yout." The data to which Roger wastefaring follow $ 900.000 Solar Technology, Inc Income Statement For the Quarter Ended March 31 Sales (32.000 batteries) Less operating expenses Selling and administrative expenses $290.000 Manufacturing overhead 410.000 Purchases of raw materials 360.000 Direct labor 70.000 Net operating loss 1.130.000 5 (170.000) Solar Technology was organized at the beginning of the current year to produce and market a Tevolutionary new solar hattery The company's accounting system was set up hy Roger's brother i-law who had taken an accounting course about 10 years ago "We may not last a year if the insurance company doesn't pay the $226,000 it owes us for the 3,000 batteries lost in the warehouse fire last week" said Roger. The insurance adjuster slys out claim is intrated, but he's just trying to pressure us into a lower figure. We have the data to back up our claim, and it will stand up in any court." On April, just after the end of the first quarter, the company's finished goods storage area was swept by fire and all 8.000 sold batteries were destroyed (These batteries were part of the 40,000 units completed during the first quarter. The company insurance policy states that the company will be reimbursed for the cost of any finished batteries destroyed or stolen Roger's brother-in-law has determined this costas follows Total costs for the quarter S1,130.000 Batteries produced during the quarter 40.000 units - $25.25 pet mit 8.000 batteries $28.25 per unit = $226,000 Inventories at the beginning and end of the quarter were as follows: Beginning of End of the Quarter the Ouartos Raw materia 50 $10,000 Work in process 50 $50,000 Finished goods 50 ? Managerial Accounting and Cost Concepts 73 Recured What conceptual errors, if any, were made in preparing the income statement above 2 Prepare a schedule of cost of goods manufactured for the first quarter 3. Prepare a connected income statement for the first quarter Your statement should show in de tail how the cost of goods sold is computed 4. Do you agree that the insurance company mes Solar Technology, Inc. $226,000? Explain your awer