Sales 7000 Units @ Rs. 5/- Rs. 35000/-
Cost of Goods sold
Direct Materials Rs. 10000/-
Direct Labour Rs. 7500/-
Factory overhead Rs. 5000/-
Total Rs. 22500/-
Less Finished goods Inventory Rs. 6750/- Rs. 15750/-
(3000 units @ Rs. 2.25)
Gross Profit Rs. 19250/-
Less selling & administration expenses Rs. 18000/-
Net Profit Rs. 1250/-
Disturbed by low profit, M.D of the industries asked you to check the statement. Your examination revealed that the following manufacturing cost were included in selling & administrative expenses:
Heat light & Power Rs. 500/-
Salary of foreman Rs. 4000/-
Tax on Factory Building Rs. 400/-
Depreciation of Machinery Rs. 2600/-
There was no ending inventory of work in process. You are required to prepare a revised income statement and explain the reasons of variation with the help of working notes.