Question

chen knives. A new Obj. 2 1. Income from 2,000 In January the new product. wgh these In January 1, 20Y8. e Kitchen Ninja EXCEL TEMPLATE PR 16-5A Flow of costs and income statement Ginocera Inc. is a designer, manufacturer and distributor of custom gourment kitchen knives. A kitchen knife series called the Kitchen Ninia was released for production in early 20Y8. In la the company spent $600,000 to develop a late-night advertising infomercial for the new During 20Y8, the company spent an additional $1,400,000 promoting the product through infomercials, and $800,000 in legal costs. The knives were ready for manufacture on January 1 Ginocera uses a job order cost system to accumulate costs associated with the Kitchen Kitife. 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 purchased directly from a raw material supplier, are stamped into a single piece of metal the 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 employe 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 aver- age $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.

Answer 1

1.

Ginocera Inc.
Income Statement
For the Year Ended December 31, 20Y8
Sales (1120000 x $16)			17920000
Cost of goods sold (1120000 x $9.70)			10864000
Gross profit			7056000
Selling expenses:
Informercial campaign ($600000 + $1400000)	2000000
Promotional materials (60000 x $60)	3600000
Shipping expense (1120000 x $0.20)	224000
Total selling expenses		5824000
Administrative expenses:
Legal expenses		800000
Total operating expenses			6624000
Income from operations			432000

Supporting calculations:

Manufacturing cost per unit:
Direct materials ($4.00 + $1.50 + $0.50)	6.00
Direct labor	0.50
Factory overhead ($800/250)	3.20
Total cost per unit	9.70

2.

Finished Goods	$       776,000
Work in Process	$       230,000

Calculations:

Finished goods balance = 1200000 - 1120000 = 80000 knives

Finished goods = 80000 x $9.70 = $776000

Work in process = 25000 x ($6.00 + $3.20) = 25000 x $9.20 = $230000

Since the 25000 stamped knives are waiting to be assembled, the direct labor cost has not yet been incurred on them and hence, they are valued only at the material cost $6.00 + overhead cost $3.20.