Question
Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit
Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss August's income statement follows SHIFT COMPANY Income Statement For the Honth Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities $460,000 $ 12,600 15,000 68,000 23,000 171,000 16,000 2,200 41,000 Selling and administrative salaries Advertising 34,000 82,700 Net loss 467,500 $17.500) The company's controller resigned a month ago Sam, a new assistant in the controler office, prepared the income statement above Sam has had little experience in manufacturing operations. After seeing the $7500 ciss for August, Swift's president stated, was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than Juys I mink it's time to start looking for someone to buy out the company's assets--if we don't, within a few months there won't be any assets to pell By the way don't see any reason to look for a new controller. We'll just limp along with Sare for the time being Additional information about the company follows a. Approximately 50% of the uteities cost and 80% of the insurance apply to factory operations. The remaining amours apply to seling and administrative adivities b. Inventory balances at the beginning and end of August were as follows Rasaterials Work In process finished goods August 1 119,000 8,000 41,000 August 31 $15,000 16,000 45,000 c. Only 75% of the rent on facities applies the remainder apples to seting and administrative activities Required: 1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for August Direct materials SWIFT COMPANY Schedule of Cost of Goods Manufactured For the Month Ended August 31 Raw materials available for use Raw materials used in production Manufacturing overhead Total ovemead cons Total manufacturing costs Total work in process viviendon Cost of goods manufactured 2. As a second step, prepare a new income statement for August SWIFT COMPANY Income Statement For the Month Ended August 31 Less cost of goods sold Goods available for sale Less operating expenses 3. On the bus of your statements prepared in Requirements and (2), would you recommend that the company look for a buyer NO
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