Chapter 2 \"I was sure that when our cell phone hit the market it would be an instant success\" said Kit Patel, founder and president of SunPower Communications incorporated. "Butjust look at the data it's a gusher of red ink for the first quarter period. It's obvious that we're better scientists than we are businesspeople". The data to which Kit Patel was referring to follows: Sales (32,000 cell phones) $1,280,000 Less: Operating expenses Selling and administrative salaries $150,000 - Advertising 90,000 _ Maintenance 73,000 Indirect labour cost 120,000 _ Cleaning supplies for the factory 7,000 Purchase of raw materials 460,000 Insurance for the factory 18,000 Depreciation for office equipment 47,000 Utilities 100,000 _ Depreciation factory equipment 140,000 Direct labour cost 90,000 Travel expenses for salespeople 40,000 TOTAL EXPENSES 1,430,000 N ET LOSS 5(150,000) \"At this rate we will be out of business within a year, said Pat Lee the company's accountant. But I'll double check these figures so I know they are right.\" SunPower Communications was organized at the beginning of the current year to produce and market a revolutionary new solar powered cell phone. The company's accounting system was set up by Bradley Wallace an experienced accountant who recently left the company to do independent consulting work. The statement above was prepared by Pat Lee, the assistant. Sun Power manufactured 40,000 cell phones during the quarter and sold 32,000 cell phones. On April 3rd, just after the end of the first quarter the company's finished goods storage area was ravaged by fire and all 8,000 unsold cell phones were destroyed. These phones were part of the 40,000 units completed during the first quarter. The company's insurance policy states that the company will be reimbursed for the m of any finished cell phones destroyed or stolen. Pat Lee has determined this cost as follows: Total expenses for the quarter $1 430 000 = $35.75 per cell phone Cell phones produced during the quarter, 40,000 Based on the calculation above, Pat Lee calculated that the insurance company owed SunPower $286,000 for the 8000 cell phones destroyed ( 8,000 x $35.75) \"We may not last a year if the insurance company doesn't pay the $286,000 it owes us for the 8,000 cell phones lost in the warehouse fire last week\