Flow of Costs and Income Statement
Ginocera Inc. is a designer, manufacturer, and distributor ofcustom gourment kitchen knives. A new kitchen knife series calledthe Kitchen Ninja was released for production in early 20Y8. InJanuary, the company spent $600,000 to develop a late-nightadvertising infomercial for the new product. During 20Y8, thecompany spent an additional $1,400,000 promoting the productthrough these infomercials, and $800,000 in legal costs. The kniveswere ready for manufacture on January 1, 20Y8.
Ginocera uses a job order cost system to accumulate costsassociated with the Kitchen Ninja Knife. The unit direct materialscost 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 hardenedsteel blanks, which are purchased directly from a raw materialsupplier, are stamped into a single piece of metal that includesboth the blade and the shaft. The stamping machine requires onehour per 250 knives.
After the knife shafts are stamped, they are brought to anassembly area where an employee attaches the handle to the shaftand 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 promotionalmaterials, such as posters and aisle displays. Promotionalmaterials 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 perstamping machine hour after the knife blanks are stamped. Therewere an additional 25,000 stamped knives, handles, and cases inprocess and waiting to be assembled on December 31, 20Y8.
In your computations, if required, round interim perunit costs to two decimal places.
Required:
1. Prepare an annual income statement for theKitchen Ninja knife series.
| Ginocera Inc. |
| Income Statement |
| For the Year Ended December 31, 20Y8 |
| | | $ |
| | | |
| | | $ |
| Selling and administrative expenses: | | | |
| Selling expenses: | | | |
| $ | | |
| | | |
| | | |
| Total selling expenses | | $ | |
| Administrative expenses: | | | |
| | | |
| Total selling and administrative expenses | | | |
| | | $ |
2. Determine the balances in the work inprocess and finished goods inventories for the Kitchen Ninja knifeseries on December 31, 20Y8.
| Finished Goods | $ |
| Work in Process | $ |
