Veekay Company was organized on November 1 of the previous year. After seven months of start-up losses,

Question:

Veekay Company was organized on November 1 of the previous year. After seven months of start-up losses, management had expected to earn a profit during June, the most recent month. Management was disappointed, however, when the income statement for June also showed a loss. June€™s income statement follows:

After seeing the $31,000 loss for June, Veekay€™s president stated, €œI was sure we€™d be profitable within six months, but after eight months we€™re still spilling red ink. Maybe it€™s time for us to throw in the towel. To make matters worse, I just heard that Debbie won€™t be back from her surgery for at least six more weeks.€
Debbie is the company€™s controller; in her absence, the statement above was prepared by a new assistant who has had little experience in manufacturing operations. Additional information about the company follows:
a. Only 85% of the rent on facilities applies to factory operations; the remainder applies to selling and administrative activities.
b. Inventory balances at the beginning and end of June were as follows:

c. Some 90% of the insurance and 80% of the utilities cost apply to factory operations; the remaining amounts apply to selling and administrative activities. The president has asked you to check over the above income statement and recommend whether the company should continue operations.
Required:
1. As one step in gathering data for a recommendation to the president, prepare a schedule of cost of goods manufactured for June.
2. As a second step, prepare a new income statement for the month.
3. Based on your statements prepared in (1) and (2) above, would you recommend that the company continue operations?