Financial Statements of a Manufacturing Firm The following events took place for Sorensen Manufacturing Company during January, the first month of its operations as a producer of digital video monitors: a. Purchased $250,000 of materials.
b. Used $180,000 of direct materials in production.
c. Incurred $450,000 of direct labor wages.
d. Incurred $180,000 of factory overhead.
e. Transferred $760,000 of work in process to finished goods.
f. Sold goods for $1,200,000.
g. Sold goods with a cost of $675,000.
h. Incurred $215,000 of selling expense.
i. Incurred $125,000 of administrative expense.

Required:
a. Prepare the January income statement for Sorensen Manufacturing Company.
b. Determine the inventory balances at the end of the first month of operations.

Required a.

January income statement for Sorensen Manufacturing Company

Sales                                  $1,200,000

Less Cost of Sales              ($675,000)

Gross Profit                          $525,000

Less Expenses :

Selling expense                  ($215,000)

Administrative expense     ($125,000)

Net Income / (Loss)             $185,000

Required b.

Work In Process Inventory  = $120,000

Finished Goods Inventory  = $85,000

Explanation:

Manufacturing Cost Schedule (Determination of Work In Process Inventory)

Direct Materials                                             $180,000

Indirect Materials  ($250,000 - $180,000)    $70,000

Direct Labor                                                  $450,000

Factory Overheads                                        $180,000

Total Cost of Goods Manufactured             $880,000

Less Transferred to finished goods           ($760,000)

Closing Work In Process Inventory             $120,000

Finished Goods T- Account (Determination of Finished Goods Inventory)

Debit :

Transferred from Work In Process              $760,000

Totals                                                            $760,000

Credit:

Trading Account                                          $675,000

Ending Finished Goods Inventory                $85,000

Totals                                                            $760,000

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