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 2016. In January, the company spent $605,000 to develop a late-night advertising infomercial for the new product. During 2016, the company spent $1,412,000 promoting the product through these infomercials, and $816,000 in legal costs. The knives were ready for manufacture on January 1, 2016.

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

Hardened steel blanks
(used for knife shaft and blade)	$4.00
Wood (for handle)	1.55
Packaging	0.45

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 $0.55 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 $0.15 per knife.

Total completed production was 1,210,000 units during the year. Other information is as follows:

Number of customers (stores)	58,500
Number of knives sold	1,135,000
Wholesale price (to store) per knife	$16

Factory overhead cost is applied to jobs at the rate of $675 per stamping machine hour after the knife blanks are stamped. There were an additional 21,000 stamped knives, handles, and cases waiting to be assembled on December 31, 2016.

	Required:
A.	Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided. Refer to the list of Amount Descriptions for exact wording of the answer choices for text entries.*
B.	Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 2016.* * In your computations, if required, round interim per-unit costs to two decimal places.

Answer 1

Let's list down extracts from Question

Development	605000
PROMOTION	1412000
legal	816000

  

Steel blanks	4
handle	1.55
packaging	0.45

Stamping machine	250	knives/hour
Direct labpur of handle	0.55	per unit
promotion	60	per store
shipping cost	0.15	pet unit

Completed production	1210000
No of customers(stores)	58500
no of knives sold	1135000
wholsale pricer per knoves	16
Over head cost
per stamping machine hour	675
raw material	21000

Income Statement

	Income satement
A	Sales(1135000*16)			18160000
B	Cost of goods sold(C+D)			7434250
C	Labour (0.55*1135000)		624250
D	Raw material ((4+1.55+0.45)*1135000)		6810000
E	Overhead Factory Cost ((1135000/250)*675)			3064500
F	Gross Profit (A-B-E)			7661250
G	Operating Expenses (H+I)			3680250
H	Distribution(shipping)(0.15*1135000)		170250
I	Promotional Expenses for store(60*58500)		3510000
J	Development Expenses			605000
K	Promotional Expenses			1412000
L	Legal expenses			816000
M	Net Profit (F-G-J-K-L)			1148000

Inventories

	Finished Goods Inventories
A	Units		75000
B	Cost per piece (C+D)		6.55
C	Labour	0.55
D	Raw material	6
E	Total (direct cost*Units)(6.55*75000)(B*A)+		491250
F	Machine hour cost(75000/250)*675		202500
G	Total value of finished goods(E+F)		693750

Work in process
Units		21000
Raw material cost(4+1.55+0.45)		6
Total		126000