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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
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: VEEKAY COMPANY Income Statement For the Month Ended June 30 Sales $742,500 Less operating expenses: Selling and administrative $ 43,400 salaries Rent on facilities 51,000 Purchases of raw materials 242,000 Insurance 11,100 Depreciation, sales 12,650 equipment Utilities costs 63,800 Indirect labour 127,800 Direct labour 106,700 Depreciation, factory 15,200 equipment Maintenance, factory 9,100 Advertising 94,600 777,350 Operating loss $ (34,850) After seeing the $34,850 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: June 1 June 30 $20,100 $50,950 Raw materials Work in process $78,650 $97,850 Finished goods $23,320 $72,270 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. Schedule of Cost of Goods Manufactured For the Month Ended June 30 Direct materials: 0 $ 0 Manufacturing overhead: 0 Total overhead costs Total manufacturing costs 0 0 Cost of goods manufactured $ 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: 0 0 Selling and administrative expenses: 0 $ $ 0
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