Question

Flow of Costs and Income Statement

Ginocera Inc. is a designer, manufacturer, and distributor of low-cost, high-quality stainless steel kitchen knives. A new kitchen knife series called the Kitchen Ninja was released for production in early 20Y8. In January, the company spent $423,900 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $989,100 advertising the product through these infomercials. In addition, the company incurred $424,000 in legal costs. The knives were ready for manufacture on January 1, 20Y8.

Ginocera uses a job order cost system to accumulate costs associated with the kitchen knife. The unit direct materials cost for the knife is as follows:

Hardened steel blanks (used for knife shaft and blade)	$1.40
Wood (for handle)	0.50
Packaging	0.50

The production process is straightforward. First, the hardened steel blanks, which are purchased directly from a raw material supplier, are stamped into a single piece of metal that includes both the blade and the shaft. The stamping machine requires one hour per 1,140 knives.

After the knife shafts are stamped, they are brought to an assembly area where an employee attaches the handle to the shaft and packs the knife in a decorative box. The direct labor cost is $0.20 per unit.

The knives are sold to stores. Each store is given promotional materials such as posters and aisle displays. Promotional materials cost $30 per store. In addition, shipping costs average $0.2 per knife.

Total completed production was 471,000 units during the year. Other information is as follows:

Number of customers (stores)	20,000
Number of knives sold	400,400
Wholesale price (to store) per knife	$12

Factory overhead cost is applied to jobs at the rate of $570 per stamping machine hour after the knife blanks are stamped. There were an additional 117,750 stamped knives, handles, and cases waiting to be assembled on December 31, 20Y8.

In your computations, if required, round interim per unit costs to two decimal places.

Required:

1. Prepare an annual income statement for the Kitchen Ninja knife series.

2,

2. Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 20Y8.

Finished Goods	$
Work in Process	$

Answer 1

Answer:

1.        

GINOCERA INC. Income Statement For the Year Ended December 31, 20y8
Sales			$4804800
Cost of goods sold			1241240
Gross profit			$3563560
Selling expenses:
Infomercial campaign	$1413000(989,100+423,900)
Promotional materials	600,000
Shipping expenses	80080
Total selling expenses		$2093080
Administrative expenses:
Legal expenses		424,000
Total operating expenses			2517080
Income from operations			$ 1046480

Supporting calculations:

Sales: 400400 units × $12 = $4804800

Cost of goods sold: 400400 units × $3.10 = $1241240

Manufacturing cost per unit (Knife):

Direct materials:

Hardened Steel Blanks………………………………             $1.40

Wood (for handle)…………………………………… 0.50

Packaging……………………………………………                0.50

Total direct materials……………………………………        $2.40

Direct labor………………………………………………         0.20

Factory over head*………………………………………      0.50

Total manufacturing cost per knife………………………       $3.10

*$570÷1140 knives per hour

Promotional materials: 20,000 stores × $30 = $600,000

Shipping expenses: 400400 units × $0.20 = $80080

2.         Finished Goods balance, December 31, 20y8:

(471,000 units – 400400 units) × $3.10 = $218860

Work in Process, December 31, 20y8:

117,750 units × ($2.40 + $0.50) = $341475

The materials, stamping, and factory over head have already been applied to the 117,750 units. Only the direct assembly labor has yet to be applied for these units.