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Homework answers / question archive / Swift Company was organized on March 1 of the current year
Swift Company was organized on March 1 of the current year. After five months of start-up losses, man- agement had expected to earn a profit during August. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: $450,000 Swift Company Income Statement For the Month Ended August 31 Sales Less operating expenses: Direct labor cost Raw materials purchased Manufacturing overhead Selling and administrative expenses Net operating loss..... $ 70,000 165,000 85,000 142,000 462,000 S (12,000) After seeing the $12,000 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." 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. Inventory balances at the beginning and end of August were: Raw materials Work in process Finished goods August 1 $8,000 $16.000 $40,000 August 31 $13,000 $21,000 $60,000 The president has asked you to check over the income statement and make a recommendation as to 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 for August 2. As a second step. prepare a new income statement for August 3. Based on your statements prepared in (1) and (2) above, would you recommend that the company look for a buyer?
Answer. 1. As one step in gathering data for recomendation to the president, Schedule of Cost of Goods Manufactured for August is as follows:
Formula: Inventory at the begining XXX
Add: Purchases made XXX
Less: Inventory at closing (XXX)
Cost of goods manufactured XXXX
Schedule:
| Schedule of Cost of Goods Manufactured for August month | ||
| Particular | Amount | |
| Inventory at the beginning | ||
| Raw Material | $ 8,000 | |
| Work in Progress | $ 16,000 | |
| Finished Goods | $ 40,000 | $ 64,000 |
| Add: Raw material purchases | $ 1,65,000 | |
| Less: Closing Inventory | ||
| Raw Material | $ 13,000 | |
| Work in Progress | $ 21,000 | |
| Finished Goods | $ 60,000 | $ -94,000 |
| Cost of Goods Manufactured | $ 1,35,000 |
Answer 2: New Income statement for August month is as follows:
| Swift Company | ||
| Income Statement | ||
| For the month ended August 31 | ||
| Sales | $ 4,50,000 | |
| Less: Operational expenses | ||
| Direct labor cost | $ 70,000 | |
| Cost of Goods manufactured (See answer 1) | $ 1,35,000 | |
| Manufacturing Overhead | $ 85,000 | |
| Selling and Administrative expenses | $ 1,42,000 | $ 4,32,000 |
| Net operating income | $ 18,000 |
Answer 3: Based on our statement prepared in (1) and (2) above we find that company has earned $ 18000 operating income and Management is not disappointed with that. We would not like to recommend company to look for buyer as company is earning operating income of $ 18000.
