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Skyler Company Income Statement

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Skyler Company was organized on November 1 of the previous year. After seven months of start-up losses, management had expected to earn a profit during June, the most recent month. Management was disappointed; however, when the income statement for June also showed a loss, June's income statement follows:

Skyler Company
Income Statement
For the month ended June 30, XXXX

Sales $600,000
Less operating expenses:
Selling and administrative salaries $35,000
Rent on facilities 40,000
Purchases of raw materials 190,000
Insurance 8,000
Depreciation, sales equipment 10,000
Utilities costs 50,000
Indirect labor 108,000
Direct labor 90,000
Depreciation, factory equipment 12,000
Maintenance, factory 7,000
Advertising 80,000 630,000
Net Operating Loss $(30,000)

After seeing the $30,000 loss for June, Skyler's president stated, "I was sure we'd be profitable within six months, but after eight months we're still spilling red ink. Maybe it is time for us to throw in the towel and accept one of those offers we have had for the company. To make matters worse, I just heard that Linda won't be back from her surgery for at least six more weeks."

Linda is the company's controller; in her absence, the statement above was prepared by a new assistant who has had little experience in manufacturing operations. Additional information about the company follows:

a. Only 80% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.

b. Inventory balances at the beginning and end of the month were as follows:

June 1 June 30
Raw materials $17,000 $42,000
Work in process 70,000 85,000
Finished goods 20,000 60,000

c. Some 75% of the insurance and 90% of the utilities cost apply to factory operations; the remaining amounts apply to selling and administrative activities.

The president has asked you to check over the above income statement and make a recommendation as to whether the company should continue operations.

1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for June.

2. As a second step, prepare a new income statement for the month.

3. Based on your statements prepared in (1) and (2) above, would you recommend that the company continue operations?

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1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for June.

Skyler Company
Schedule of Cost of Goods Manufactured
For the month ended June 30, XXXX

Work in Progress 1/1 $70,000.00
Direct Materials
Raw materials (6/1) $ 17,000
Add: Raw Materials to Purchases $190,000
Total Raw Materials Available for use $207,000
Less Raw Materials Inventory (6/30) $ 42,000
Direct ...

Solution Summary

This solution is comprised of a detailed explanation to prepare a schedule of cost of goods manufactured for June, and as a second step, prepares a new income statement for the month, and based on the statements prepared in (1) and (2), whether we would recommend that the company continue operations.

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See Also This Related BrainMass Solution

Blue Corporation acquired controlling ownership of Skyler Corporation. A consolidated balance sheet needs to be prepared on the date of acquisition.

Blue Corporation acquired controlling ownership of Skyler Corporation on December 31, 20X3, and a consolidated balance sheet was prepared immediately. Partial balance sheet data for the two companies and the consolidated entity at that date follow:

Please see attachment for:
BLUE CORPORATION AND SKYLER CORPORATION
Balance Sheet Data
December 31, 20X3

During 20X3, Blue provided engineering services to Skyler and has not yet been paid for them.
There were no other receivables or payables between Blue and Skyler at December 31, 20X3.

Please help answer:
a. What is the amount of unpaid engineering services at December 31, 20X3, on work done by Blue for Skyler?
b. What balance in accounts receivable did Skyler report at December 31, 20X3?
c. What amounts of wages payable did Blue and Skyler report at December 31, 20X3?
d. What was the fair value of Skyler as a whole at the date of acquisition?
e. What percentage of Skylerâ??s shares were purchased by Blue?
f. What amounts of capital stock and retained earnings must be reported in the consolidated balance sheet?

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