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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 $350,000 of materials.
Used $316,800 of direct materials in production.
Incurred $91,100 of direct labor wages.
Applied factory overhead at a rate of 49% of direct labor cost.
Transferred $429,100 of work in process to finished goods.
Sold goods with a cost of $408,300.
Revenues earned by selling bikes, $675,500.
Incurred $137,400 of selling expenses.
Incurred $66,800 of administrative expenses.

a. Prepare the July income statement for Bridger Bikes Inc. Assume that Bridger Bikes uses the perpetual inventory method.
b. Determine the inventory balances at the end of the first month of operations.

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Answer:

(a) Prepare the July income statement for Bridger Bikes Inc. Assume that Bridger Bikes uses the perpetual inventory method.

The answer is as follows:

Operating income = $63,000

Explanation:

(a) Prepare the July income statement for Bridger Bikes Inc. Assume that Bridger Bikes uses the perpetual inventory method.

Solution:

Perpetual Inventory System

A perpetual inventory system is a method of inventory management that records real-time transactions of received or sold stock through the use of technology – generally considered a more efficient method than a periodic inventory system.

Operating income:

Operating income = Revenue - Cost of goods sold - Selling and administrative expenses.

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