Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss $ 15,000 17,000 60,000 25,000 195,000 18,000. 3,800 49,000 42,000 85,700 $500,000 510,500 $(10,500) The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam has had little experience in manufacturing operations. After seeing the $10,500 loss for August, Swift's president stated, "I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way, I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being." Additional information about the company follows: a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to
Swift Company was organized on March 1 of the current year. After five months of startup losses, management had expected to earn a profit during August, the most recent month. Management was disappointed, however, when the income statement for August also showed a loss. August's income statement follows: SWIFT COMPANY Income Statement For the Month Ended August 31 Sales Less: Operating expenses: Indirect labour cost Utilities Direct labour cost Depreciation, factory equipment Raw materials purchased Depreciation, sales equipment Insurance Rent on facilities Selling and administrative salaries Advertising Net loss $ 15,000 17,000 60,000 25,000 195,000 18,000. 3,800 49,000 42,000 85,700 $500,000 510,500 $(10,500) The company's controller resigned a month ago. Sam, a new assistant in the controller's office, prepared the income statement above. Sam has had little experience in manufacturing operations. After seeing the $10,500 loss for August, Swift's president stated, "I was sure we'd be profitable within six months, but our six months are up and this loss for August is even worse than July's. I think it's time to start looking for someone to buy out the company's assets-if we don't, within a few months there won't be any assets to sell. By the way, I don't see any reason to look for a new controller. We'll just limp along with Sam for the time being." Additional information about the company follows: a. Approximately 70% of the utilities cost and 70% of the insurance apply to factory operations. The remaining amounts apply to
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter2: Basic Cost Management Concepts
Section: Chapter Questions
Problem 22E: Ellerson Company provided the following information for the last calendar year: During the year,...
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