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 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

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

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.

$(23,000)