Rufus GPS Company is owned and operated by Rufus Crutcher, Sr. The company has been in operation for 7 years and manufactures GPS devices. The company has been quite successful over the past years. Six month ago, Mr. Crutchers son, Rufus Crutcher, Jr, took a leave of absence to attend law school. Kenneth served as the Chief Financial Officer for the Company. An accountants was hired part-time to assist the staff in carrying out the accounting and financial duties.

The newly hired accountant prepared the following income statement for the quarter ended March 31, 2016:

Rufus GPS Company Income Statement For the Quarter Ended March 31, 2016

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Sales Revenue $ 2,340,000

Operating Expenses:

Raw Material Purchases $ 792,000 Advertising expenses 270,000 Indirect labor 84,000 Direct Labor 570,000 Selling and Admin. Salaries 225,000 Utilities expense 48,000 Rent-Factory Building 180,000 Insurance expense 33,000 Depreciation-Factory Equipment 91,000 Depreciation-Sales Equipment 135,000

Total Operating Expenses (2,428,000)

NET INCOME (LOSS) $( 88,000)

Mr. Crutcher, Sr. is greatly disturbed by these reported results. The company had been consistently reporting a net income prior to this first quarter of 2016. Consequently, he has retained you as a consultant and has asked you to review the income statement and recommend any needed corrections and adjustments.

You inquired and obtained the following additional data:

A. Inventory Data January 1 March 31

Raw Material $48,000 $204,000 Work-in-Progress 96,000 84,000 Finished Goods 90,000 288,000

B. Sixty-five percent (65%) of the utility expense and fifty percent (50%) of the insurance expense are to be applied to the factory. The remaining amount are to be considered selling and administrative expenses.

You have prepared the following:

1. A schedule of cost of good manufactured for the quarter ended March 31, 2016.

2. Prepared a correct income statement for the quarter ended March 31, 2016.

You will now prepare a letter, along with the schedule and correct income statement mentioned above, to send to Mr. Crutcher, Sr. The letter will especially describe the changes you made and clearly discuss any changes that you determined in net income (loss). You want to be sure that your letter highlights the main results first and then addresses other relevant points.