Discussion:
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.