PART FOUR:

Waterways Ridgetown Inc. (WRI) was organized on January 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. Augusts income statement follows:

Waterways Ridgetown Inc. Income Statement For the Month Ended August 31, 2019
Sales			$530,000
Less:	Operating Expenses
	Indirect Labour Cost	$9,000
	Utilities	25,000
	Direct Labour Cost	80,000
	Depreciation, Factory	21,000
	Raw Materials	226,000
	Depreciation	8,000
	Insurance	8,000
	Rent on Facilities	80,000
	Selling and Administrative	22,000
		65,000	$544,000
Net (Loss)			($14,000)

The companys controller resigned a month ago. Sam, a new assistant in the controllers office, prepared the income statement above. Sam has had little experience in manufacturing operations. After seeing the $14,000 loss for August, WRIs president stated, I was sure wed be profitable within six months, but our six months are up and this loss for August is even worse than Julys. I think its time to start looking for someone to buy out the companys assetsif we dont, within a few months there wont be any assets to sell. By the way, I dont see any reason to look for a new controller. Well just limp along with Sam for the time being.

Additional information about the company follows:

1. Some 50% of the utilities cost and 80% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities.
2. Inventory balances at the beginning and end of August were as follows:

	August 1	August 31
Raw Materials	$31,000	$78,000
Work in Process	18,000	10,000
Finished Goods	55,000	50,000

3. Only 75% 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. Based on your statements prepared in parts (1) and (2), would you recommend that the company look for a buyer?