Ortiz Company is a manufacturer of toys. Its controller resigned in August 2014. An inexperienced assistant accountant has prepared the following income statement for the month of August 2014.

ORTIZ COMPANY Income Statement For the Month Ended August 31, 2014

Sales revenue

Less: Operating expenses

$675,000

Raw materials purchases

$220,000

Direct labor cost

160,000

Advertising expense

75,000

Selling and administrative salaries

70,000

Rent on factory facilities

60,000

Depreciation on sales equipment

50,000

Depreciation on factory equipment

35,000

Indirect labor cost

20,000

Utilities expense

10,000

Insurance expense

5,000

705,000

Net loss

$(30,000)

Prior to August 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. After examining other manufacturing cost data, you have acquired additional information as follows.

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

August 1

August 31

Raw materials

$19,500

$35,000

Work in process

25,000

21,000

Finished goods

40,000

52,000

  1. Only 60% of the utilities expense and 70% of the insurance expense apply to factory operations; the remaining amounts should be charged to selling and administrative activities.

Instructions

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

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