Problem - The Northpole Company started operation one year ago. The general manager asks your opinion of its first year's income statement which was prepared by a clerk who has very little knowledge of accounting. The income statement is as follows:
|
The Northpole Company Income Statement For Year Ending December 31, 1989
|
|
Sales (10,000 units @ $4)
|
|
|
$40,000
|
|
Cost of sales:
|
|
|
|
|
Materials purchased
|
$29,000
|
|
|
|
Direct labor
|
9,200
|
|
|
|
Factory overhead
|
4,600
|
$42,800
|
|
|
|
|
|
|
Less:
|
|
|
|
|
Material inventory, December 31
|
5,000
|
|
|
|
Work in process, December 31:
|
|
|
|
|
1,000 units, all materials
|
|
|
|
|
50% labor and overhead
|
800
|
|
|
|
Finiched goods, December 31 (1,000 units)
|
1,000
|
6,800
|
36,000
|
|
Gross Profit
|
|
|
$4,000
|
|
Operating expenses
|
|
|
|
|
Selling costs
|
|
$2,000
|
|
|
Administrative costs
|
|
3,000
|
5,000
|
|
|
|
|
|
Net loss
|
|
|
($1,000)
|
Required:
What is your opinion? If you think that the income statement is poorly or even falsely prepared, prepare a correct income statement for Northpole Company.
Support your statement with a Statement of Cost of Goods Manufactured.