The following events took place for Rockhaven Biking Inc. during February, the first month of operations as a producer of road bikes:

Purchased $310,700 of materials. Used $267,200 of direct materials in production. Incurred $228,000 of direct labor wages. Applied factory overhead at a rate of 80% of direct labor cost. Transferred $650,500 of work in process to finished goods. Sold goods with a cost of $615,200. Revenues earned by selling bikes, $1,101,200. Incurred $264,500 of selling expenses. Incurred $98,400 of administrative expenses.

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a. Prepare the income statement for Rockhaven Biking Inc. for the month ending February 28.

Line Item DescriptionAmountAmountRevenues Cost of goods sold Gross profit Selling and administrative expenses: Selling expenses Administrative expenses Total selling and administrative expenses Operating income

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a. Both product and period costs must be reported on the income statement and are necessary to measure income.

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b. Determine the inventory balances on February 28, the end of the first month of operations.

Materials inventory, February 28 Work in process inventory, February 28 Finished goods inventory, February 28