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 $600,000 to develop a late-night advertising infomercial for the new product. During 2016, the company spent $1,400,000 promoting the product through these infomercials, and $800,000 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) 1.50
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 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.
Ginocera Inc.
Income Statement
For the Year Ended December 31, 2016
1
2
3
4 Selling expenses:
5
6
7
8
9 Administrative expenses:
10
11
12
B. Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 2016.
Amount Descriptions
Amount Descriptions
Cost of goods sold
Factory overhead
Gross profit
Income from operations
Infomercial campaign
Legal expenses
Loss from operations
Promotional materials
Sales
Shipping expenses
Total selling and administrative expenses
Total selling expenses
Work in process

Answer 1

Answer:

1. $432,000

2. Finished goods $776,000

Work in progress $230,000

Explanation:

GINOCERAINC. IncomeStatement For the Year Ended December31, 2016

Sales$17,920,000

(1,120,000 units × $16 )

Less Cost of goods sold10,864,000

(1,120,000 units × $9.70)

Grossprofit$7,056,000

Sellingexpenses:

Infomercial campaign $2,000,000

Promotional materials3,600,000.

(60,000 stores × $60)

Shipping  expenses 224,000

(1,120,000 units × $0.20)

Total selling expenses$5,824,000

Administrativeexpenses:

Legal expenses 800,000

Total operating expenses 6,624,000

($5,824,000+800,000)

Income from operations $432,000

($7,056,000-6,624,000)

Calculation of the Manufacturing cost per unit of Knife is:

Direct materials:

Hardened Steel Blanks $4.00

Wood for handle $1.50

Packaging $0.50

Total direct materials $6.00

Direct labor $0.50

Factory overhead $3.20

($800÷250 knives perhour)

Total manufacturing cost per knife $9.70

2. The  Finished Goods balance for year end  December 31, 2016 will be:

(1,200,000 units – 1,120,000 units) × $9.70 =

=80,000×$9.70

=$776,000

Work in Process, for the year ended December 31, 2016 will be:

25,000 units × ($6.00 + $3.20)

25,000 units × $9.2

= $230,000.

Note that materials, stamping as well  as factory overhead have been applied to the 25,000 units, but  direct assembly labor has not been applied for these units.