Phillips Company is a manufacturer of computers. Its controller resigned in October 2014. An inexperienced assistant accountant has prepared the following income statement for the month of October 2014.

PHILLIPS COMPANY Income Statement For the Month Ended October 31, 2014

Sales revenue

Less: Operating expenses

$780,000

Raw materials purchases

$264,000

Direct labor cost

190,000

Advertising expense

90,000

Selling and administrative salaries

75,000

Rent on factory facilities

60,000

Depreciation on sales equipment

45,000

Depreciation on factory equipment

31,000

Indirect labor cost

28,000

Utilities expense

12,000

Insurance expense

8,000

803,000

Net loss

$ (23,000)

Prior to October 2014, the company had been profitable every month. The company”s president is concerned about the accuracy of the income statement. As her friend, you have been asked to review the income statement and make necessary corrections. Afterexamining other manufacturing cost data, you have acquired additional information as follows.

  1. Inventory balances at the beginning and end of October were:

October 1

October 31

Raw materials

$18,000

$29,000

Work in process

16,000

14,000

Finished goods

30,000

45,000

  1. Only 75% of the utilities expense and 60% of the insurance expense apply to factory operations. The remaining amounts should be charged to selling and administrative activities.

Instructions

(a)Prepare a schedule of cost of goods manufactured for October 2014.

(b)Prepare a correct income statement for October 2014.