"I-was'sure that when our'cellphone hit the market'it'would be an'instant success,"'said'Brittany'Patel, founder'and president 'of Sun Power. Communications, 'Inc." "But'just look at the gusher of red ink for the first quarter." It's obvious that we're better'scientists than we are business people." - The data to which'Patel'was referring is included'in Exhibit-1." "At this rate we'll be out of business within a year," said Peter-Merchant, thecompany's accountant.." "But'Tve double-checked these figures, so'I'know they'reright." Sun'Power Communications was organized at the beginning of the current year to produce and market a revolutionary new solar-powered cellphone. -The company's accounting system was set up by Margie Wallace, an experienced accountant who recently left the company to do independent consulting work * The statement above was prepared by Merchant, her assistant. II "We'may not last a year if the insurance company doesn't pay the $286,000-itowes us for the 8,000 cellphones lost in the warehouse fire last week,"-said Patel. "The'insurance adjuster'says our claim is inflated, but he's just trying to pressure us into a lower figure. We have the data to back up our claim, and it will stand up in any court." t~ On April 3 , just after the end of the first quarter, the company's finished goods storage area was swept by the fire and all 8,000 unsold cellphones were destroyed. "(These phones were part of the 40,000 units completed during the first quarter.) "The company's insurance policy states that the company will be reimbursed for the "cost" of any finished phones destroyed or stolen. Merchant Cellphonesproducedduringthequarter,40,000Totalcosisforthequarer,$1,430,000=$35.75percellphone8,000cellphones$35.75percellphone=$286,000 The following additional information is available on the company's activities during the quarter ended March:31:l a. Inventories at the beginning and end of the quarter were as follows: b. 80% of the rental cost for facilities and 90% of the utilities cost relates to manufacturing operations. 'The remaining'amounts relate to selling and administrative activities. Required - 1. Prepare a schedule of cost of goods manufactured for the first quarter. 1 2. Prepare a corrected income'statement for the first quarter."Your statement should show-in detail how the cost of goods sold is computed. 3. Do you agree that the insurance company owes Sun Power Communications, Inc. $286,000 ?-Explain your answer to the president in Discussion Forum Session 2.7 Exhibit-1 SUNPOWER COMMUNICATIONS, INC. Income Statement For the Quarter Ended March 31 Sales (32,000 cellphones) $1,280,000 Less: Operating expenses: Selling and administrative salaries Advertising Maintenance, production Indirect labour cost Cleaning supplies, production Purchases of raw materials Rental cost, facilities Insurance, production Depreciation, office equipment Utilities Depreciation, production equipment Direct labour cost Travel, salespeople Total operating expenses Net loss $150.000 90,000 73,000 120,000 7.000 460,000 95.000 18,000 47,000 100,000 140,000 90,000 40.000 1.430,000 5(150000)