Question

Financial Statements of a Manufacturing Firm The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes: • Purchased $480,000 of materials. • Used $434,500 of direct materials in production. • Incurred $125,000 of direct labor wages. • Applied factory overhead at a rate of 40% of direct labor cost. • Transferred $578,000 of work in process to finished goods. • Sold goods with a cost of $550,000. • Revenues earned by selling bikes, $910,000. • Incurred $185,000 of selling expenses. • Incurred $90,000 of administrative expenses. a. Prepare the income statement for Rushmore Biking Inc. for the month ending February 28. Assume that Rushmore Biking Inc. uses the perpetual inventory method. Rushmore Biking Inc. Income Statement For the Month Ended February 28 $ $ Selling and administrative expenses: $ Total selling and administrative expenses $ b. Determine the inventory balances on February 28, the end of the first month of operations. Materials inventory, February 28 $ Work in process inventory, February 28 $ Finished goods inventory, February 28 $

Answer 1

a) Income statement:

Income Statement

Particular	Amount	Amount
Revenues		$910,000
Cost of goods sold		$550,000
Gross Profit		$360,000
Operating expense
Selling Expenses	$185,000
Administrative Expenses	$90,000
Total operating expenses		$275,000
Net Income		85,000

b) Material = ( $480,000 -  $434,500) = $45,500

Work-in-progress = ( $434,500 + $125,000+ ($125,000 * 40%) -  $578,000 = $31,500

Finished Goods = $578,000 - $550,000 = $28,000