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Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss $ 15,000 17,000 60,000 25,000 195,000 18,000. 3,800 49,000 42,000 85,700 $500,000 510,500 $(10,500) 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 $10,500 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: a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to

Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss $ 15,000 17,000 60,000 25,000 195,000 18,000. 3,800 49,000 42,000 85,700 $500,000 510,500 $(10,500) 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 $10,500 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: a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss $ 15,000 17,000 60,000 25,000 195,000 18,000 3,800 49,000 42,000 85,700 $500,000 510,500 $(10,500) 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 $10,500 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: a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to
Transcribed Image Text:Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss $ 15,000 17,000 60,000 25,000 195,000 18,000 3,800 49,000 42,000 85,700 $500,000 510,500 $(10,500) 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 $10,500 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: a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to
a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities. b. Inventory balances at the beginning and end of August were as follows: Raw materials Work in process Finished goods August 1 August 31 $26,000 $22,000 8,000 49,000 c. Only 75% 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 for August Direct materials: Raw materials inventory, August 1 Add: Purchases of raw materials Raw materials available for use SWIFT COMPANY Schedule of Cost of Goods Manufactured For the Month Ended August 31 2. As a second step, prepare a new income statement for August. Less cost of goods sold: 18,000 54,000 Goods available for sale Less operating expenses: Yes No SWIFT COMPANY Income Statement For the Month Ended August 31 0 0 3. On the basis of your statements prepared in Requirements (1) and (2), would you recommend that the company look for a buyer? 0
Transcribed Image Text:a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to selling and administrative activities. b. Inventory balances at the beginning and end of August were as follows: Raw materials Work in process Finished goods August 1 August 31 $26,000 $22,000 8,000 49,000 c. Only 75% 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 for August Direct materials: Raw materials inventory, August 1 Add: Purchases of raw materials Raw materials available for use SWIFT COMPANY Schedule of Cost of Goods Manufactured For the Month Ended August 31 2. As a second step, prepare a new income statement for August. Less cost of goods sold: 18,000 54,000 Goods available for sale Less operating expenses: Yes No SWIFT COMPANY Income Statement For the Month Ended August 31 0 0 3. On the basis of your statements prepared in Requirements (1) and (2), would you recommend that the company look for a buyer? 0
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