Gallup Enterprises was organized on March $1$ of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August$$s income statement follows:

GALLUP ENTERPRISES

Income Statement

For the Month Ended August $31$

Sales $ $1,222,400$

Less: Operating expenses:

Indirect labour cost $ $25,000$

Utilities $60,000$

Direct labour cost $159,000$

Depreciation, factory equipment $45,000$

Raw materials purchased $533,000$

Depreciation, sales equipment $24,000$

Insurance $37,000$

Rent on facilities $186,000$

Selling and administrative salaries $50,000$

Advertising $126,0001,245,000$

Net loss $ $(-25,000)$

The company$$s controller resigned a month ago. Hilda, a new assistant in the controller$$s office, prepared the income statement above. Hilda has had little experience in manufacturing operations. After seeing the $$25,000$ loss for August, Gallup's president stated, $$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$$ll just limp along with Sam for the time being.$$

Additional information about the company follows:

Approximately $70\%$ of the utilities cost and $40\%$ of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities.

Inventory balances at the beginning and end of August were as follows:

August $1$ August $31$

Raw materials $ $68,000$ $ $117,000$

Work$-$in$-$ process $37,00045,000$

Finished goods $66,00073,000$

Only $60\%$ of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.

The president has asked you to check over the income statement and make a recommendation about whether the company should look for a buyer for its assets.

Required:

$1.$ As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured in good form for August.

$2.$ As a second step, prepare a new income statement for August.

$3.$ On the basis of your statements prepared in Requirements $(1)$ and $(2),$ would you recommend that the company look for a buyer?

multiple choice

Yes

No

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