Answered Essay: The following events took place for Chi-Lite Inc. during June 2016, the first month of operations as a producer of road bikes

The following events took place for Chi-Lite Inc. during June 2016, the first month of operations as a producer of road bikes

• Purchased $397,940 of materials.

• Used $343,700 of direct materials in production.

• Incurred $290,100 of direct labor wages.

• Applied factory overhead at a rate of 80% of direct labor cost.

• Transferred $813,970 of work in process to finished goods.

• Sold goods with a cost of $799,480. • Sold goods for $1,405,850.

• Incurred $319,590 of selling expenses.

• Incurred $125,080 of administrative expenses. Required:

A. Prepare the June income statement for Chi-Lite. Assume that Chi-Lite uses the perpetual inventory method. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. B. Determine the inventory balances at the end of the first month of operations.

B. Determine the inventory balances at the end of the first month of operations.

Materials inventory, June 30
Work in process inventory, June 30
Finished goods inventory, June 30

Expert Answer

 

A. June Income statement is as prepared below:

Chi-Lite Inc
Statement of Cost of goods manufactured
For the month ending June 30, 2016
Particulars Amount ($) Amount ($)
Opening Material 0
Add: Direct Material purchase 397,940
Cost of material available for use 397,940
Less: Closing Direct Material (purchased minus used) 54,240
Cost of Direct Material Used (given) 343,700
Direct Labour Cost 290,100
Manufacturing Overhead (290,100*80%) 232,080
Total manufacturing overhead 232,080
Total manufacturing Costs 865,880
Add: Beginning Work in Process 0
Less: Closing Work in Process (Manufacturing cost minus transferred to finished goods) 51,910
Cost of goods manufactured 813,970
Chi-Lite Inc
Income Statement
For the month ending June 30, 2016
Particulars Amount ($) Amount ($)
Sales 1,405,850
Less: Cost of goods sold
Opening finished goods inventory 0
Add: Cost of goods manufactured 813,970
Total goods available for sale 813,970
Less: Closing finished goods inventory (Cost of goods available for sale minus cost of goods sold) 14,490
Cost of goods sold 799,480
Gross Margin 606,370
Operating Expenses
Selling expenses 319,590
Administrative expenses 125,080 444,670
Net profit 161,700

B. Ending Balances are as shown below:

Material Inventory June 30
Opening Material 0
Add: Direct Material purchase 397,940
Cost of material available for use 397,940
Less: Material used for production 343,700
Closing Direct Material 54,240
Work in process Inventory, June 30
Beginning Work in Process 0
Add: Manufacturing Costs 865,880
Less: Issued to finished goods 813,970
Work in process Inventory, June 30 51,910
Finished Goods inventory, June 30
Opening Inventory 0
Add: Cost of goods manufactured 813,970
Less: Cost of goods sold 799,480
Finished Goods inventory, June 30 14,490
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