The following events took place for Salsa Inc. during October 2012, the first month of operations as a producer of road bikes:
• Purchased $400,300 of materials.
• Used $344,300 of direct materials in production.
• Incurred $296,000 of direct labor wages.
• Applied factory overhead at a rate of 75% of direct labor cost.
• Transferred $827,800 of work in process to finished goods.
• Sold goods with a cost of $804,600.
• Sold goods for $1,440,200.
• Incurred $346,000 of selling expenses.
• Incurred $128,700 of administrative expenses.
a) Prepare the October income statement for Salsa. Assume that Salsa uses the perpetual inventory method.
b) Determine the inventory balances at the end of the first month of operations.
-Work in process inventory
-Finished goods inventory
This solution illustrates how to determine the net income and inventory balances for a manufacturing firm.