Answer Happy

CHECK FIGURE (2) Net income: $30,000 Swift Company was organized on March 1 of the current year. After five months of startup losses, management cted to carna profit during August, the most recent month. Management was disappointed, however, when the income stat (or August also showed a loss. August's income statement follows: Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment SWIFT COMPANY Income Statement For the Month Ended August 31 $ 9,000 25,000 80,000 21,000 336.000 $530,000 B WILD

Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss 21,000 226,000 8,000 8,000 80,000 22,000 65.000 544.000 $(14.000) 3 The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam. has had little experience in manufacturing operations. After seeing the $14,000 loss for August, Swift's president stated, "I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way. I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being." Additional information about the company follows: Activate Windows a. Approximately 80% of the utilities cost and 50% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities to Swthings £ activate WindONS

b. Inventory balances at the beginning and end of August were as follows: Rew materials Work in process Finished goods August 1 $31.000 18,000 50,000 August 31 $78,000 10,000 55.000 c. Only 60% of the rent on facilities applies to factory operations, the remainder applies to selling and administrative activities. The president has asked you to check over the income statement and make a recommendation about whether the company should look for a buyer for its assets. Required: 1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured in good form for August Page 57 2. As a second step, prepare a new income statement for August. Activate Windows On the basis of your statements prepared in Requirements (1) and (2), would you recommend that the company look for a buyer 33