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losses, management had expected to earn a profit during August. However, the income statement for August also showed a loss, and management was disappointed. The

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losses, management had expected to earn a profit during August. However, the income statement for August also showed a loss, and management was disappointed. The following is the income statement for August: Taylor and Co. Income Statement For the Month Ended August 31 Sales $450,000 Less Operating expenses: Direct labor cost $ 70,000 Utilities for head office 5,000 Heating and lighting for production plant 10,500 Depreciation (of which plant equipment is 75%) 66,000 Office supplies expense 8,500 Raw materials purchased 165,000 Salaries (40% plant maintenance staff; 20% sales staff 15,000 and the rest head office staff) Insurance of plant and head office(shared in the ratio 47,500 of 40:60) Rent of office building 65,000 Advertising costs 9,500 462,000 Net operating loss $(12,000) The company did not have a trained accountant, and the assistant had prepared the income statement above. The loss for a consecutive fifth month has made the management think of shutting down operations and look for a buyer of its assets, before all assets are consumed in making up losses. Inventory balances at the beginning and end of August were: August 1 August 31 Raw materials $8,000 $13,000 Work in process $16,000 $21,000 Finished goods $40,000 $60,000 The president of the company has asked you to check over the income statement and make a recommendation as to whether the company should look for a buyer for its assets. Required: a. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for August b. As a second step, prepare a new income statement for August. c. Based on your statements prepared above, explain if you would recommend that the company look for a buyer

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