Information from the records of Island Timberlands Inc.for November is as follows: $\begin{array}{lr}
\text { Sales } & \$ 820,000 \
\text { Selling and administrative expenses } & 140,000 \
\text { Direct materials purchases } & 176,000 \
\text { Direct labour } & 200,000 \
\text { Factory overhead } & 270,000 \
\text { Direct materials, November 1 } & 24,000\
\text { Work in process, November } 1 & 50,000 \
\text { Finished goods, November } 1 & 46,000 \
\text { Direct materials, November } 30 & 28,000 \
\text { Work in process, November } 30 & 56,000 \
\text { Finished goods, Novmeber } 30 & 38,000
\end{array}$ What is the net income for the month of November?

Question

Quizplus · Accepted Answer

To calculate net income, first determine the cost of goods sold (COGS):  1. Calculate the cost of direct materials used:     $$ \text{Direct materials used} = \text{Direct materials, Nov 1} + \text{Direct materials purchases} - \text{Direct materials, Nov 30} = 24,000 + 176,000 - 28,000 = 172,000 $$  2. Calculate the total manufacturing costs:     $$ \text{Total manufacturing costs} = \text{Direct materials used} + \text{Direct labour} + \text{Factory overhead} = 172,000 + 200,000 + 270,000 = 642,000 $$  3. Calculate the cost of goods manufactured:     $$ \text{Cost of goods manufactured} = \text{Total manufacturing costs} + \text{Work in process, Nov 1} - \text{Work in process, Nov 30} = 642,000 + 50,000 - 56,000 = 636,000 $$  4. Calculate COGS:     $$ \text{COGS} = \text{Finished goods, Nov 1} + \text{Cost of goods manufactured} - \text{Finished goods, Nov 30} = 46,000 + 636,000 - 38,000 = 644,000 $$  5. Calculate gross profit:     $$ \text{Gross profit} = \text{Sales} - \text{COGS} = 820,000 - 644,000 = 176,000 $$  6. Calculate net income:     $$ \text{Net income} = \text{Gross profit} - \text{Selling and administrative expenses} = 176,000 - 140,000 = 36,000 $$

Information from the Records of Island Timberlands Inc What Is the Net Income for the Month of November