Refer to Exhibits 4-4 and 4-5. Suppose manufacturing costs were the same, but there was an ending work-in-process inventory of $3 million. The cost of the completed goods would therefore be $37 million instead of $40 million. Suppose also that the cost of goods sold is unchanged.

1. Recast the income statement of Exhibit 4-4.

2. What lines and ending balances would change in Exhibit 4-5 and by how much?

Exhibits 4-4

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Sales (8,000,000 units @ $10) Cost of goods manufactured and $80,000,000 sold: Beginning finished- goods inventory Cost of goods $ -0- manufactured: %24 Direct materials $20,000,000 used Direct labour 12,000,000 Factory overhead Cost of goods 8,000,000 40,000,000 40,000,000 available for sale Ending finished- goods inventory 2,000,000 units @ $4 Cost of goods sold (an expense) Gross margin or gross profit Less: Other expenses 8,000,000 32,000,000 48,000,000 Selling expenses 30,000,000 General and administrative 8,000,000 38,000,000 expenses Operating income* $10,000,000