Question

Flow of costs and income statement Obj. 2 Ginocera Inc. is a designer, manufacturer, and distributor of custom gourment kitchen knives. A new kitchen knife series called the Kitchen Ninja was released for production in early 20Y8. In January, the company spent $600,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent an additional $1,400,000 promoting the product through these infomercials, and $800,000 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 Ninja Knife. The unit direct materials cost for the knife is: Hardened steel blanks (used for knife shaft and blade) $4.00 Wood (for handle) 1.50 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 250 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 into a decorative box. The direct labor cost is $0.50 per unit. The knives are sold to stores. Each store is given promotional materials, such as posters and aisle displays. Promotional materials cost $60 per store. In addition, shipping costs average $0.20 per knife. Total completed production was 1,200,000 units during the year. Other information is as follows: Number of customers (stores) 60,000 Number of knives sold 1,120,000 Wholesale price (to store) per knife $16 Factory overhead cost is applied to jobs at the rate of $800 per stamping machine hour after the knife blanks are stamped. There were an additional 25,000 stamped knives, handles, and cases in process and waiting to be assembled on December 31, 20Y8.

Instructions 1. Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided.

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

3. How could a manager use these financial statements to help make decisions for Robstown Corporation?

Answer 1

Part 1

GINOCERA INC.

Income statement

For the Year Ended December 31 20Y8

Sales			17920000
Cost of goods sold			10864000
Gross profit			7056000
Selling expenses:
Informercial campaign	2000000
Promotional materials	3600000
Shipping expenses	224000
Total selling expenses		5824000
Administrative expenses :
Legal expenses		800000
Total operating expenses			6624000
Net operating income			4320000

Explanation :

Sales = 1120000*16=17920000

Cost of goods sold =1120000*9.70=10864000

Manufacturing cost per unit

Direct materials:
Hardened steel blanks	4.00
Wood	1.50
Packaging	0.50
Total direct materials		6.00
Direct labor Factory Overhead ($800/250 knives per hour )		0.50 3.20
Total manufacturing cost per knife		9.70

Promotional materials = 60000 stores * $60 =3600000

Shipping expenses = 1120000 units * $0.20 =224000

Part 2

Finished goods Balance, December 31 20Y8

(1200000-1120000)*9.70 =776000

Work in process December 31 20Y8

250000*(6+3.20)=230000

Part C

The materials, stamping, and factory overhead have already been applied to the 25,000 units. Only the direct assembly labor has yet to be applied for these units.