Question

Veekay Company was organized on November 1 of the previous year. After seven months of start-up losses, management had expected to earn a profit during June, the most recent month. Management was disappointed, however, when the income statement for June also showed a loss. June’s income statement follows:

VEEKAY COMPANY
Income Statement
For the Month Ended June 30
Sales				$	780,000
Less operating expenses:
Selling and administrative salaries	$	45,400
Rent on facilities		56,000
Purchases of raw materials		257,000
Insurance		11,600
Depreciation, sales equipment		13,400
Utilities costs		67,800
Indirect labour		131,800
Direct labour		110,200
Depreciation, factory equipment		16,200
Maintenance, factory		9,600
Advertising		97,600			816,600
Operating loss				$	(36,600	)

     After seeing the $36,600 loss for June, Veekay’s president stated, “I was sure we’d be profitable within six months, but after eight months we’re still spilling red ink. Maybe it’s time for us to throw in the towel. To make matters worse, I just heard that Debbie won’t be back from her surgery for at least six more weeks.”

     Debbie is the company’s controller; in her absence, the statement above was prepared by a new assistant who has had little experience in manufacturing operations. Additional information about the company follows:

1. Only 85% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.
2. Inventory balances at the beginning and end of June were as follows:

	June 1	June 30
Raw materials	$20,600	$53,200
Work in process	$79,400	$99,600
Finished goods	$23,920	$75,120

c. Some 90% of the insurance and 80% of the utilities cost apply to factory operations; the remaining amounts apply to selling and administrative activities.

    The president has asked you to check over the above income statement and recommend whether the company should continue operations.

Required:

1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for June.

2. As a second step, prepare a new income statement for the month.

Answer 1

Answer 1.

Answer 2.