Financial Statements of a Manufacturing Firm The following events took place for Focault Inc. during July 20Y2, the first month of operations as a producer of road bikes: Purchased $598,700 of materials Used $514,900 of direct materials in production Incurred $444,000 of direct labor wages Applied factory overhead at a rate of 70% of direct labor cost Transferred $1,218,900 of work in process to finished goods Sold goods with a cost of $1,185,400 Sold goods for $2,121,900 Incurred $509,700 of selling expenses Incurred $189,700 of administrative expenses a. Prepare the July income statement for Focault. Assume that Focault uses the perpetual inventory method. Focault Inc. Income Statement For the Month Ended July 31, 20Y2 $ $ Selling and administrative expenses: $ Total selling and administrative expenses $ b. Determine the inventory balances at the end of the first month of operations. Materials inventory, July 31 $ Work in process inventory, July 31 $ Finished goods inventory, July 31 $

Answer and Explanation:

The Preparation of the July income statement for Focault is shown below:-

Focault Inc.

Income Statement

For the Month Ended July 31

Particulars                              Amount

Sales                                        $2,121,900

Cost of goods sold                 $1,185,400

Gross profit                             $936,500

Selling and administrative expenses:  

Selling expenses             $509,700

Administrative expenses $189,700

Total selling and administrative

expenses                                 $699,400

Net operating income              $237,100

b. The computation of inventory balances at the end of the first month of operations is shown below:-

Particulars                                                Amount

Materials inventory, July 31                    $83,800

($598,700 - $514,900)  

Work in process inventory, July 31       $50,800

($514,900 + $444,000 + ($444,000 × 70%) - $1,218,900)  

Finished goods inventory, July 31          $33,500

($1,218,900 - $1,185,400)