Farm Organic Ltd (FOL) provides organically certified drenches to organic farmers. These drenches treat intestinal and external parasites in sheep and cattle. The business is the brainchild of David Scott. David developed the products for the organic farming market. He has been producing the chemicals on a small scale to meet the organic farm demand.

The demand has grown with many non-organic farmers now seeking his products. David borrowed money from a bank and has now set up operations in a bigger factory. He has purchased new automated equipment designed to streamline the operations. The factory has a small laboratory where David is working to develop organically certifiable sprays for the fruit and vegetable market.

David has now hired you as his accountant. He needs monthly reports enabling him to manage cash flow and to track the profitability of the expanded business.

Question 2 Cost of Manufacturing Statement (20 Marks)

David has asked for a Cost of Goods Manufacturing Statement and Income Statement for the month of July. Use the following information taken from the books that David has been keeping to prepare the statement.

	$			$
Advertising expense	5,000		Interest expense	5,000
Sales travel expense	1,530		Machinery maintenance	250
Depreciation - factory machinery	1,600		Office Salaries	5,000
Depreciation - office machinery	600		Rates - factory	1,400
Direct Labour	6,000		Raw materials inventory 1/7/19	4,800
Factory power	150		Raw materials inventory 31/7/19	5,200
Factory rent	9,195		Raw materials purchases	53,200
Factory supplies	4,800		Sales revenue	158,500
Finished goods 1/7/19	11,200		Sales salaries	4,780
Finished goods 31/7/19	10,500		Telephone	500
Freight inwards materials	730		Work in process 1/7/19	2,250
Indirect labour	2,000		Work in process 31/7/19	2,500

Required:

1. Prepare a cost of goods manufactured statement for the month ended 31 July 2019. This must be prepared in Excel and cut and pasted into your Word document. Include the data above in your data section of the spreadsheet.
2. What was the companys cost of sales for the month ended 31 July 2019?
3. What was the companys gross profit for the month ended 31 July 2019?
4. Write a short (300 words) explanation for David about the limitations of a cost of goods manufactured statement for decision making.