Sandburg Co., Inc. began operations on January 1 of the current year. After five months of losses, management expects to earn a profit during June. However, Allan Johnson, the president and founder, was disappointed by the June income statement.

Sandburg Company

Income Statement

For the Month Ended June 30



Less: Operating Expenses:

Direct labor cost


Raw materials purchased


Manufacturing overhead


Selling and admin expenses



Net Operating Loss


Johnson was also concerned because the income statement was prepared by Stuart Smiley, a newly hired accounting assistant who had never worked for a manufacturing company before. His only experience was as an accounting clerk for a Las Vegas casino where reconciled poker chip accounts.

The former controller, Susan King, had resigned in May. Johnson recalled from his managerial accounting course, which he had taken over 20 years ago, that there was a way to calculate the cost of goods manufactured and the cost of goods sold based on cost data and inventory balances. He asked Stuart for inventory information, which looked liked this:

Inventory Balances

June 1

June 30

Raw Materials



Work in Process



Finished Goods



Johnson got out his managerial accounting textbook and stayed up all night trying to figure out whether Sandburg Co. was losing money or not. He isn’t sure how to do it, so he asks you for the following:

1. Prepare a schedule of Cost of Goods Manufactured for June.

2. Prepare a new income statement.

3. Explain to Johnson why your income statement is different from Stuart’s.