Soma Company was organized on November 1 of the previous year. After seven months of start-up losses, management had expected to earn a profit during June, the most recent month. Management was disappointed, however, when the income statement for June also showed a loss. June's income statement follows: SOMA COMPANY Income Statement For the Month Ended June 30 $ 795,000 Sales Less operating expenses: Selling and administrative salaries $ 46,200 Rent on facilities 58,000 Purchases of raw materials 263,000 Insurance 11,800 Depreciation, sales equipment 13,700 Utilities costs 69,400 Indirect labour 133,400 Direct labour 111,600 Depreciation, factory equipment 16,600 Maintenance, factory 9,800 Advertising 98,800 Operating loss 832,300 (37,300) $ After seeing the $37,300 loss for June, Soma's president stated, "I was sure we'd be profitable within six months, but after eight months we're still spilling red ink. Maybe it's time for us to throw in the towel. To make matters worse, I just heard that Debbie won't be back from her surgery for at least six more weeks." Debbie is the company's controller; in her absence, the statement above was prepared by a new assistant who has had little experience in manufacturing operations. Additional information about the company follows: a. Only 85% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities. b. Inventory balances at the beginning and end of June were as follows: June 1 June 30 Raw materials $20,800 $54,100 Work in process $79,700 $100,300 Finished goods $24,160 $76,260 C. Some 90% of the insurance and 80% of the utilities cost apply to factory operations; the remaining amounts apply to selling and administrative activities. The president has asked you to check over the above income statement and recommend whether the company should continue operations. Required: 1. Describe the conceptual error that the "accountant" made in preparing the income statement shown on the first page. 2. Prepare a schedule of cost of goods manufactured for June. 3. Prepare a new income statement for June