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was sure when our camping tent hit the market it would be an stant success, but I guess sti ave some things to learn about running a business," said Michael McCarter, founder and president of Outdoor Living, Inc. "Demand has been so strong for our lightweig ht individual tent that I was sure we'd be profitable mmediately, but just look at the gusher of red ink for the first quarter. At this rate we'll be out of business in a year." The data to which Michael was referring are shown below: Outdoor Living, Inc ncome Statement For the Quarter Ended June 30 Sales (4,000 tents) S 683,000 Less operating expenses: Selling and administrative salaries 63,000 Advertising 140.000 Cleaning supplies, factory 4.000 Indirect labour cost 91,000 Depreciation, office equipment 13.000 56,000 Direct labour cost Raw materials purchased 217.000 Maintenance, factory 33,000 50,000 Rental cost, facilities Insurance, factory 6.000 Utilities 30,000 53,000 Depreciation, production equipment Travel, salespersons 42,000 798,000 Operating loss (115,000) Outdoor Living was organized on April 1 of the current year to produce and market a revolutionary new lightweight one-person camping tent. The company's accounting system was set up by Michael's brother-in- law, who had taken an accounting course about 10 years ago. "We may not last a year if the insurance company doesn't pay the S159,600 it owes us for the 1,000 the warehouse fire last week," said Michael "The agent says our claim is inflated, but that's a tents lost in lot of baloney Just after the end of the quarter, the company's finished goods storage warehouse was destroyed by a re and all 1,000 tents were destroyed. Th e tents were part of the 5,000 units completed during the quarter ended June 30. The company's insurance policy states that the company will be reimbursed for the "cost" of the goods destroyed or stolen. Michael's brother-in-law has determined this cost as follows Total costs for the quarter $798,000 5, ooounits 159,60per unit Tents produced during the quarter 1,000 units x $159.60 per unit $159,600 The following additional information is available on the company's activities during the quarter ended June 30 a. Inventories at the beginning and end of the quarter were as follows Beginning of End of the the Quarter Quarte $28,000 Raw materials Work in process $21,000 Finished goods b. Ninety percent of the rental cost for facilities and 80% of the utilities cost relate to manufacturing operations. The remaining amounts relate to selling and administrative activities
