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 $361,800 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $844,200 advertising the product through these infomercials. In addition, the company incurred $362,000 in legal costs. The knives were ready for manufacture on January 1, 20Y8.

1. 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 960 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 402,000 units during the year. Other information is as follows:

   Number of customers (stores)	17,100
   Number of knives sold	341,700
   Wholesale price (to store) per knife	$12

   Factory overhead cost is applied to jobs at the rate of $480 per stamping machine hour after the knife blanks are stamped. There were an additional 100,500 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.

   Ginocera Inc.
   Income Statement
   For the Year Ended December 31, 20Y8
   			$
   			$
   Selling expenses:
   	$
   Total selling expenses		$
   Administrative expenses:
   Total operating expenses
   Income from operations			$

   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	$

Check My Work

Answer 1

ANSWER :-

1.

Ginocera Inc.
Income Statement
For the Year Ended December 31, 20Y8
Sales (341700x $12)			4100400
Cost of goods sold (341,700x $3.10)			1059270
Gross profit			3041130
Selling expenses:
Informercial campaign ($361800+ $844200)	1206000
Promotional materials (17100x $30)	513000
Shipping expense (341700x $0.20)	67340
Total selling expenses		1786340
Administrative expenses:
Legal expenses		362000
Total operating expenses			2148340
Income from operations			892790

Working:

Manufacturing cost per unit:
Direct materials ($1.40+ $0.50+ $0.50)	2.40
Direct labor	0.20
Factory overhead ($480/960)	0.50
Total cost per unit	3.10

2.

Finished Goods	$       186930
Work in Process	$       291450

Working:

Finished goods balance = 402000- 341700= 60300knives

Finished goods = 60300x $3.10= $186930

Work in process = 100,500x ($2.40+ $0.50) = 100,500x $2.90 = $291450