The following events took place for Fed Inc. during October 2012, the first month of operations as a producer of road bikes:
Purchased $427,000 of materials.
Used $367,500 of direct materials in production.
Incurred $315,000 of direct labor wages.
Applied factory overhead at a rate of 80% of direct labor cost.
Transferred $892,500 of work in process to finished goods.
Sold goods with cost of $848,750.
Sold goods for $1,500,000.
Incurred $367,500 of selling expenses.
Incurred $131,950 of administrative expenses.
a. Prepare the October income statement for Fed. Assume that Fed uses the perpetual inventory method.
b. Determine the inventory balances at the end of the first month of operations.
 

a. FED INC.

Income Statement

For the Month Ended October 31, 2012

Revenues................................................................................. $1,500,000

Cost of goods sold.................................................................. 848,750

Gross profit............................................................................. $ 651,250

Selling expenses...................................................................... $367,500

Administrative expenses......................................................... 131,950 499,450

Income from operations.......................................................... $ 151,800

b. Materials inventory:

Purchased materials............................................................ $427,000

Less: Materials used in production..................................... 367,500

Materials inventory, October 31......................................... $ 59,500

Work in process inventory:

Materials used in production.............................................. $367,500

Direct labor......................................................................... 315,000

Factory overhead (80% × $315,000).................................. 252,000

additions to work in process.............................................. $934,500

Less: Transferred to finished goods................................... 892,500

Work in process inventory, October 31.............................. $ 42,000

Finished goods inventory:

Transferred to finished goods............................................. $892,500

Less: Cost of goods sold.................................................... 848,750

Finished goods inventory, October 31............................... $ 43,750