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 20Y8. In January, the company spent $615,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $1,384,000 advertising the product through these infomercials. In addition, the company incurred $811,000 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)	$4.00
Wood (for handle)	1.55
Packaging	0.40

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 in a decorative box. The direct labor cost is $0.45 per unit.

The knives are sold to stores. Each store is given promotional materials such as posters and aisle displays. Promotional materials cost $58 per store. In addition, shipping costs average $0.20 per knife.

Total completed production was 1,243,000 units during the year. Other information is as follows:

Number of customers (stores)	59,500
Number of knives sold	1,123,000
Wholesale price (to store) per knife	$18

Factory overhead cost is applied to jobs at the rate of $700 per stamping machine hour after the knife blanks are stamped. There were an additional 25,500 stamped knives, handles, and cases waiting to be assembled on December 31, 20Y8.

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. Be sure to complete the statement heading. In your computations, if required, round interim per-unit costs to two decimal places.

Ginocera Inc.

Income Statement

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

Finished Goods	?
Work in Process	?

Answer 1

Answer:

Ginocera Inc.
Income Statement
For the Year Ended December 31, 20Y8
	Amount ($)	Amount ($)	Amount ($)
Sales (11,23,000 x $18)			2,02,14,000
Cost of goods sold (1123000 x $9.20)			1,03,31,600
Gross profit			98,82,400
Selling expenses:
Informercial campaign ($615,000 + $13,84,000)	19,99,000
Promotional materials (59,500 x $58)	34,51,000
Shipping expense (11,23,000 x $0.20)	2,24,600
Total selling expenses		56,74,600
Administrative expenses:
Legal expenses		8,11,000
Total operating expenses			64,85,600
Income from operations			33,96,800

Working:
Manufacturing cost per unit:
Direct materials ($4.00 + $1.55+ $0.40)	5.95
Direct labor	0.45
Factory overhead ($700/250)	2.80
Total cost per unit	9.20

2
Finished Goods	$       11,04,000
Work in Process	$       223,125

Working:

Finished goods balance = 12,43,000 - 11,23,000 = 120,000 knives

Finished goods = 120,000 x $9.20 = $11,04,000

Work in process = 25500 x ($5.95 + $2.80) = 25500 x $8.75 = $223,125

Since the 25500 units are waiting to be assembled, direct labor cost is not yet incurred on the same and hence, they are valued at material cost $5.95 + overhead cost $2.80.