Question 1

Philips Computer Enterprise is a manufacturer of computers. Its controller resigned in October 2019. An inexperienced assistant accountant has prepared the following income statement for the month of October 2019.

Philips Computer Enterprise

Income Statement for the Month Ended October 31, 2019

RM

RM

Sales revenue

800,000

Operating expenses

Raw materials purchases

264,000

Direct labour cost

190,000

Advertising expense

90,000

Selling and administrative salaries

75,000

Rent on factory facilities

60,000

Depreciation on factory equipment

31,000

Depreciation on sales equipment

45,000

Indirect labour cost

28,000

Utilities expense

13,000

Insurance expense

9,000

805,000

Net loss

(5,000)

Prior to October 2019, the company has been profitable every month. The company's president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make the necessary corrections. After examining other manufacturing cost data, you had acquired additional information as follows.

1.Inventory balances at the beginning and end of October were:

October 1October 31

RMRM

Raw materials18,00029,000

Work in process16,00014,000

Finished goods30,00045,000

2.Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Required:

a)Compute cost of goods manufactured.(15 marks)

b)Compute cost of goods sold.(4 marks)

c)Prepare the correct income statement for October 2019.(11 marks)

(Total: 30 Marks)