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Financial Statements of a Manufacturing Firm

Scenario:
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.

Questions:
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.
-Materials inventory
-Work in process inventory
-Finished goods inventory

Solution Summary

This solution illustrates how to determine the net income and inventory balances for a manufacturing firm.

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