Referencing Styles : APA Colonial Tap Company (CTC) is a manufacturer of taps and fittings for the plumbing trade, located in Brisbane. The Company was established by Ken Hall in 1951, with a workforce of 10, to meet the needs of the post - war housing boom. Its product range was fairly limited but the compa ny had an excellent reputation for quality. Nowadays, CTC manufacturers an extensive range of high quality brass and chrome taps. The company is managed by Ken’s son, Michael, and employs 20 people. It has annual sales averaging approximately $1million. A lthough it has been consistently profitable, CTC has experienced increasing pressure from competitors since the early 1990s. The company uses a cost - plus approach to pricing but is having to reduce its markup constantly in order to maintain market share. Both Ken and Michael qualified as engineers. The business is small and has never been able to employ an accountant. Instead, a bookkeeper calculates monthly profit as sales revenue minus expenses. Prices are based on rough estimates of cost of direct mater ial and direct labour inputs plus a 50% markup. With the decline in profit and constant pressure on prices, Michael began to feel uneasy about the way costs and profits were calculated. The results for the month just ended were as shown in the table below : Sales $ 980000 Less Expenses: Material Purchased $ 300000 Factory Wages - Production line $ 250000 Production Supervisor’s Salary $ 35000 Rent $ 80000 Council Rates $ 5000 Sales Staff $ 110000 Advertising $ 18000 Equipment Depreciation $ 25000 Electricity $ 12000 Manager’s Salary $ 80000 Truck Lease (operating) $ 10000 Total Expense = $ 925000 Net Profit $5 5000 Additional Information: • There was virtually no beginning inventory of raw material, work in process and finished goods. • At the end of the month, 10% of the materials purchased remained on hand, work in process amounted to 20% of the manufacturing costs incurred during the month, and finished goods inventories were negligible. • The factory occupies 80% of the premises, the sales area 15% and administration 5%. • Most of the equipment is used for manufacturing, with only 5% of the book value being used for sales and administrative functions. • Almost all of the electricity is consumed in the fact ory. • The truck is used to deliver finished goods to customers. • Michael Hall spends about one - half of his time on factory management, one - third in the sales area and the rest on administration. Required: Michael Hall asks you to review the results for the m onth and evaluate the company’s approach to estimating product cost. In doing so, you should: 1. Comment on the cost classifications used in CTC’s income statement. (Marks 4 ) 2. Estimate the cost of goods manufactured and sold. (Marks 5 ) 3. Prepare a revised income statement for the month