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Q. No. 1 Max Marks - 10 MANUFACTURING ABC COMPANY organized on January 1, 2020. After four months of start-up losses, management had expecte d
Q. No. 1 Max Marks - 10 MANUFACTURING ABC COMPANY organized on January 1, 2020. After four months of start-up losses, management had expecte d to eam a proft during May. Management was disappointed after seeing loss of Rs. 110,000 in the following i ncome statement of May 2020: ABC-COMPANY INCOME STATEMENT 'RS.' For the Month Ended May 31, 2020 Sales 900,000 Less Operating Expenses Raw Material Purchased 350,000 Direct Labor cost 265,000 Manufacturing overhead 220,000 Selling and Administrative Expenses 175,000 (1,010,000) Net operating loss (110,000) After seeing loss, the President said that he was sure within 4 months, we would be prof table, but o ur 4 months are up and this loss for May is even worse than April, 2020. The company's controller re signed a month ago. Mr. Fahim, a new assistant in the controller's of te, prepared the income state ment above. Fahim has had little experience in manufacturing operations. Inventory balances at the beginning and end of May 2020 were: Inventories 1-May-20 31-May-20 Raw Material 30,000 90,000 Work in process 16,000 80,000 Finished Goods 25,000 60,000 The President has asked you to check over the income statement and make a recommendation as t o whether the company should shut down. Required: a. Before any recommendation, prepare statement of cost of goods manufactured for May 2020. (4 - Marks) b. Prepare a new income statement for the month of May. (4 - Marks) C. Based on your statements prepared in (a) and (b) above, would you recommend, with justif cation that the company should shut down? (2 - Marks)
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