Question

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 $354,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $826,000 advertising the product through these infomercials. In addition, the company incurred $354,000 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)	$1.80
Wood (for handle)	0.60
Packaging	0.60

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 720 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 $0.25 per unit.

The knives are sold to stores. Each store is given promotional materials such as posters and aisle displays. Promotional materials cost $40 per store. In addition, shipping costs average $0.25 per knife.

Total completed production was 295,000 units during the year. Other information is as follows:

Number of customers (stores)	12,500
Number of knives sold	250,800
Wholesale price (to store) per knife	$16

Factory overhead cost is applied to jobs at the rate of $360 per stamping machine hour after the knife blanks are stamped. There were an additional 73,750 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.

Ginocera Inc.
Income Statement
For the Year Ended December 31, 20Y8
Sales			$
Cost of Goods Sold
Gross Profit			$
Selling Expenses:
Infomercial campaign	$
Promotional Materials
Shipping Expenses
Total Selling Expenses		$
Administrative Expenses:
Legal 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	$

Answer 1

Ginocera Inc.
Income Statement
For the year ended Dec-31, 2018			Amount in $
Sales (16*250800)			$4,012,800
Direct materials (250800 *3)		$752,400
Direct labor(250800*0.25)		$62,700
Stamping machine hours(250800/720) ( Rounded Off)	348
Factory overhead (348*360)		$125,280
Cost of goods sold			$940,380
Gross profit (Sales-Cost of goods sold)			$3,072,420
Selling expenses:
Infomercials campaign		$826,000
Promotional materials (12500*$40)		$500,000
Shipping expenses (250800*0.25)		$62,700
Total selling expenses		$1,388,700
Administrative expenses:
Legal expenses		$354,000
Total selling and administrative expenses			$1,742,700
Income from operations			$1,329,720

WIP 31st Dec 2018
WIP (73750 units)		Amount $
Direct materials (73750*3)		$221,250
Direct labour(0*0.5)(Not assembled)		-
Stamping machine hours(73750/720) ( Rounded Off)	102
Factory overhead (102*$360)		$36,720
Total		$257,970

Finished goods inventories 31st Dec 2018
Finished goods inventories (295000-250800)		Amount $
Direct materials (44200*3)		$132,600
Direct labour(44200*0.25)		$11,050
Stamping machine hours(44200/720) ( Rounded Off)	61
Factory overhead (61*$360)		$21,960
Total		$165,610