Seylynn Mountain Supplies has been in business for three months. The company was formed by two outdoor enthusiasts to produce high quality sleeping bags, which can used in all kinds of weather conditions. The owners of the company were well skilled in production and had developed an excellent relationship with a boutique store that specializes in selling outdoor equipment. The administration work and the accounting have been managed by the brother of one of the owner's. The brother had a business degree but no special training in accounting. The owners had just received the income statement for the latest quarter and were somewhat dismayed by the results. The company had almost reached its productive capacity for producing sleeping bags and most of them had been sold. Still, the income statement, presented in exhibit one, showed an operating loss for the quarter. Believing something was not correct, the owners have hired you to review the accounting information and to report back to them. Exhibit One Seylynn Mountain Supplies Income Statement For the Quarter ended, June 30th Sales (7,500 sleeping bags) $750,000 Operating expenses: Selling and administrative salaries $63,000 Travel for sales purposes 45,000 Advertising 98,000 Indirect labour costs 100,000 Raw materials purchased 250,000 Plant supplies 8,000 Direct labour cost 80,000 Plant maintenance 42,000 Depreciation, office equipment 13,000 Rent (80% for the plant, 20% for sales space) 60,000 Insurance (Plant only) 6,000 Depreciation, Plant equipment 65,000 Utilities (85% plant, 15% for sales operations) 32,000 Total operating expenses 862,000 Operating loss $(112,000) During the quarter, the company completed 7,500 sleeping bags. The owners completed a physical inventory count and valuation on June 30th. The opening and closing inventory values are as follows: April 1st June 30th Raw materials inventory $0 $40,000 Work-in-process inventory $0 $28,000 Finished goods inventory $0 ?

Required: 1. Describe two conceptual errors that the "accountant" made in preparing the income statement shown in exhibit one 2. Prepare a schedule of the cost of goods manufactured for the quarter ending June 30th. 3. Prepare a corrected income statement for the quarter.