Question

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.

	Required:
1.	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.*
2.	Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 20Y8.* *In your computations, if required, round interim per-unit costs to two decimal places.

Income Statement

1. 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. In your computations, if required, round interim per-unit costs to two decimal places.

Ginocera Inc.

Income Statement

For the Year Ended December 31, 20Y8

1
2
3
4	Selling and administrative expenses:
5	Selling expenses:
6
7
8
9
10	Administrative expenses:
11
12
13

Answer 1

1			Income statement
				$	$	$
	Sales	(1120000*16)				17920000
	Less: Cost of goods sold (Note:1)					10864000
	Gross profit					7056000
	Less:
	Selling expenses:
	Advertising infomercial (600000+1400000)			2000000
	Prompotional materials (60000*60)			3600000
	Shipping expenses (1120000*0.20)			224000
	Total selling expenses				5824000
	Administrative expenses:
	Legal expenses				800000
	Total operating expenses					6624000
	Net income					432000
	Notes:
	1. Computation of cost of goods sold:
	Cost of goods sold=Units sold*Cost per unit
	Cost per unit:
				$	$
	Direct materials:
	Hardened steel blanks			4
	Wood			1.5
	Packaging			0.5
	Total direct materials				6
	Direct labor				0.5
	Factory overhead		(800/250)		3.2
	Cost per unit				9.7
	Cost of goods sold=1120000*9.7=$ 10864000
2	Balance in work in process:
	25,000 stamped knives, handles, and cases in process and waiting to be assembled.So cost of inventory excludes direct labor cost of $0.50
	Balance in work in process=25000*(6+3.2)=$ 230000
	Balance in Finished goods=(Units produced-Units sold)*Cost per unit=(1200000-1120000)*9.7=$ 776000