Data P2-2:
Swift Company was organized on March 1 of the previous year. After five months of startup
losses, management had expected to earn a profit during August. Management was disappointed,
however, when the income statement for August also showed a loss. August's income statement follows:
SWIFT COMPANY
Income Statement
For the Month Ended August 31
Sales		$450,000
Less operating expenses:
Indirect labor cost	$12,000
Utilities	15,000
Direct labor cost	70,000
Depreciation, factory equipment	21,000
Raw materials purchased	165,000
Depreciation, sales equipment	18,000
Insurance	4,000
Rent on facilities	50,000
Selling and administrative salaries	32,000
Advertising	75,000	462,000
Net loss		($12,000)
Inventory balances:
	August 1	August 31
Raw materials	$8,000	$13,000
Work in process	$16,000	$21,000
Finished goods	$40,000	$60,000
Rent applied to factory overhead	80%
Rent applied to selling and admin.	20%
Insurance applied to factory overhead	75%
Insurance applied to selling and admin.	25%
Utilities applied to factory overhead	60%
Utilities applied to selling and admin.	40%
After seeing the $12,000 loss for August, Swift's president stated, " I was sure we'd be profitable within
six months, but our six months are up and this loss for August is even worse than July's. I think it's
time to start looking for someone to buy out the company's assets--if we don't, within a few months
there won't be any assets to sell. By the way, I don't see any reason to look for a new controller.
We'll just limp along with Sam for the time being."
The company's controller resigned a month ago. Sam, a new assistant in the controller's office,
prepared the income statement above. Sam has had little experience in manufacturing operations.
The president has asked you to check out the income statement and make a recommendation as to
whether the company should look for a buyer for its assets.
1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of
goods manufactured for August.
2. As a second step, prepare a new income statement for the month.
3. Based on your statements prepared in (1) and (2) above, would you recommend that the company
continue operations?