Swift company was organized on Mach 01, 2009.

After five months of start-up losses management had

expected to earn a profit during August. Management was disappointed, however, when the income
statement for August also showed a loss. August’s income instatement follows:

SWIFT Company                                                                                                                                 
Income Statement For the Month Ended August 31, 2009

Sales   450000
Less Operating Expenses    
Indirect Labour 12,000  
Utilities 15,000  
Direct Labour 70,000  
Depreciation, Factory Equipments 21,000  
Raw Material Purchased 165,000  
Depreciation, Sales Vehicles 18,000  
Insurance 4,000  
Rent 50,000  
Selling and Administrative Salaries 32,000  
Advertising 75,000 462,000
Net Operating Losses   (12,000)

After seeing the loss of $ 12000 for august, Swift’s president stated, “I was sure we would be profitable
with in six months, but our six months are up and this loss for August is even worse than July’s. I think it
is time to starts looking someone to buy out the company’s assets – if we don’t, with in a few months
there will be no asset to sell. By the way, I don’t see any reason to look for new controller. We will just
limp along with Sam for the time being.”

The company’s controller resigned a month ago. Sam, an assistant in the controller’s office, prepared the
income statement above. Sam has a little experience in manufacturing operations. Additional
information about the company is as follows:

a) Some 60% of utilities cost and 75% of insurance apply to factory operations. The remaining
amounts apply to selling and administrative activities.
b) Inventory balances at the beginning and end of August were:

  1-Aug 31-Aug
Raw Material 8,000 13,000
WIP 16,000 21,000
Finished Goods 40,000 60,000

c) Only 80% of rent on facilities applies to factory operations. Remaining applies to selling and
administrative activities.
The president has asked to check over the income statement and make a recommendation as to
whether the company should look for a buyer for its assets.