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 $678,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $1,582,000 advertising the product through these infomercials. In addition, the company incurred $678,000 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 1,380 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 565,000 units during the year. Other information is as follows:

Number of customers (stores)	24,000
Number of knives sold	480,300
Wholesale price (to store) per knife	$16

Factory overhead cost is applied to jobs at the rate of $690 per stamping machine hour after the knife blanks are stamped. There were an additional 141,250 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	$

Answer 1

Calculating the Annual Income Statement for Kitchen Ninja Knife Sereies
Sales (480300X16)	7,684,800.00
Less: Cost of Goods Sold (480300X3.75)	1,801,125.00
Gross Margin	5,883,675.00
Less: Operating expenses
Shipping Cost( 480300X0.25 Per Knife)	120,075.00
	5,763,600.00
Less: Administration Expenses
Development of late night advertising	678,000.00
Legal Expenses	678,000.00
Administration Expenses	1,356,000.00
Income from operations	4,407,600.00
Less: Selling & Distribution expenses
Late night infomercial	1,582,000.00
Promotional Material (24000X40)	960,000.00
Income of Kitchen Ninja knife	1,865,600.00
Calculating the production cost	Per Knife
Direct Material
Hardened Steel Banks	1.8
Wood	0.6
Packing Cost	0.6
Labour	3
Labour 0.25 per unit	0.25
Prime cost	3.25
Add: Factory over Heads
Stamping (1 Working)	0.5
Factory Cost	3.75
Add: Administration over heads (678000/565000)	1.2
Add: Legal Cost (678000/565000)	1.2
Cost of Production	6.15
Calculating the value of Finished goods = production - sales = finished goods 565000-480300= 84700 X 6.15= 520905
Calculating the working progress given 141250   =141250X 3.75= 529687.5

Working
1. Total Production = 565000 units and in one hour it stamps 1380 Knives & factory over heads $690 per stamping = 565000/1380X 690= $ 282500. There for one kinfe = 282500/565000= $ 0.50