CalcSmart, Inc. is a manufacturer of handheld scientific calculators. The company controller resigned in June 2016, leaving an inexperienced assistant accountant to prepare the following income statement for the month of June 2016. Sales revenue $780,000 Less: operating expenses Raw materials purchases $264,000 Direct labor costs 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 Total operating expense 803,000 Net loss ($23,000) Prior to June 2016 the company had been profitable every month. The company president, Cal Worthington, is concerned that the June financial statement may not reflect the true financial performance of the company. Your management team has been called in to review the accounting information and determine if the income statement accurately reflects the company’s performance for June. Page 2 of 2 Your team discovers the company had the following inventory levels at the beginning and end of June: Inventory Balances 6/1/16 6/30/16 Raw materials $15,000 $30,000 Work in process 25,000 20,000 Finished goods 30,000 50,000 Other accounting information available indicates that there should be an allocation of certain expenses between factory overhead and selling costs. Allocation of Costs Overhead Selling Utilities 75% 25% Insurance 60% 40% Instructions: Based on the information provided above, prepare a schedule of the cost of goods manufactured and a traditional format income statement for the month of June. Using the format provided with Case #1, prepare a memo to the president of the company. In the memo, describe any errors in the original financial statements and explain the impact of these errors on net income. The schedule of cost of goods sold and income statement should be attached as appendices to the memo.
Posted: 4 years ago
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