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The following events took place for Rushmore Biking Inc. during February, the first month of operations as a producer of road bikes:

• Purchased $221,600 of materials.
• Used $190,600 of direct materials in production.
• Incurred $164,000 of direct labor wages.
• Applied factory overhead at a rate of 80% of direct labor cost.
• Transferred $466,400 of work in process to finished goods.
• Sold goods with a cost of $438,800.
• Revenues earned by selling bikes, $785,500.
• Incurred $188,700 of selling expenses.
• Incurred $70,200 of administrative expenses.
Question Content Area
a. Prepare the income statement for Rushmore Biking Inc. for the month ending February 28. Assume that Rushmore Biking Inc. uses the perpetual inventory method.

User Whytheq
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1 Answer

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The income statement for Rushmore Biking Inc. for the month ending February 28 will be computed as follows:
Cost of goods sold = Direct materials + Direct labor + Factory overhead


= $190,600 + $131,200 + 80% x $164,000
= $190,600 + $131,200 + $131,200
= $453,000
Gross profit = Sales - Cost of goods sold
= $785,500 - $453,000
= $332,500
Operating expenses = Selling expenses + Administrative expenses
= $188,700 + $70,200
= $258,900
Net income = Gross profit - Operating expenses
= $332,500 - $258,900
= $73,600
The income statement provides a summary of a company's revenue and expenses for a specified period of time, as well as the resulting profit or loss. To put it another way, it shows how much money a company made and spent during a given month, quarter, or year.
Rushmore Biking Inc. was able to create an income statement for the month ending February 28 by providing the necessary data. The firm purchased $221,600 of materials and used $190,600 of direct materials in production. The company applied factory overhead at a rate of 80% of direct labor cost and incurred $164,000 of direct labor wages.
By transferring $466,400 of work in process to finished goods, the company sold goods with a cost of $438,800 and earned revenues of $785,500. The company incurred $188,700 of selling expenses and $70,200 of administrative expenses.
Using the formula for computing the income statement, the company's gross profit amounts to $332,500. Operating expenses totaled $258,900, resulting in a net income of $73,600.
Rushmore Biking Inc. made a net income of $73,600 for the month ending February 28. By providing the necessary data for the income statement, the company was able to track its revenues, costs, and expenses. Knowing these details is critical for the company because it provides insight into its financial performance.

User Martin Milan
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