Veekay 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: $ 727,500 VEEKAY COMPANY Income Statement For the Month Ended June 30 Sales Less operating expenses: Selling and administrative salaries $ 42,600 Rent on facilities 49,000 Purchases of raw materials 236,000 Insurance 10,900 Depreciation, sales equipment 12,350 Utilities costs 62,200 Indirect labour 126,200 Direct labour 105,300 Depreciation, factory equipment 14,800 Maintenance, factory 8,900 Advertising 93,400 761,650 Operating loss $ (34,150) After seeing the $34,150 loss for June, Veekay'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: Raw materials Work in process Finished goods June 1 June 30 $19,900 $50,050 $78,350 $97,150 $23,080 $71,130 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. 2. As a second step, prepare a new income statement for the month. VEEKAY COMPANY Income Statement For the Month Ended June 30 Cost of goods sold: Selling and administrative expenses