Empire Company is a manufacturer of smart phones. Its controller resigned in October 2017. An inexperienced assistant accountant has prepared the following income statement for the month of October 2017.

EMPIRE COMPANY Income Statement For the Month Ended October 31, 2017

Sales revenue$780,000

Less:Operating expenses

Raw materials purchases$264,000

Direct labor cost190,000

Advertising expense90,000

Selling and administrative salaries75,000

Rent on factory facilities60,000

Depreciation on sales equipment45,000

Depreciation on factory equipment31,000

Indirect labor cost28,000

Utilities expense12,000

Insurance expense8,000 803,000

Net loss$(23,000)

Prior to October 2017, the company had been profitable every month. The companys 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		20,000		14,000
Finished goods		30,000		50,000

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. Prepare a letter to the president of the company, Shelly Phillips, describing the changes you made. Explain clearly why net income is different after the changes. Keep the following points in mind as you compose your letter.

1.	This is a letter to the president of a company, who is your friend. The style should be generally formal, but you may relax some requirements. For example, you may call the president by her first name.
2.	Executives are very busy. Your letter should tell the president your main results first (for example, the amount of net income).
3.	You should include brief explanations so that the president can understand the changes you made in the calculations.