Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883



Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Flow of costs and income statement
R-Tunes Inc. is in the business of developing, promoting, and selling musical talent online and with compact discs (CDs). The company signed a new group, called Cyclone Panic, on January 1, 20Y8. For the first six months of 20Y8, the company spent $1,000,000 on a media campaign for Cyclone Panic and $175,000 in legal costs. The CD production began on April 1, 20Y8. R-Tunes uses a job order cost system to accumulate costs associated with a CD title. The unit direct materials cost for the CD is:

The production process is straightforward. First, the blank CDs are brought to a production area where the digital soundtrack is copied onto the CD. The copying machine can copy 3,600 CDs per hour.
After the CDs are copied, they are brought to an assembly area where an employee packs the CD with a case and song lyric insert. The direct labor cost is $0.37 per CD.
The CDs are sold to record stores. Each record store is given promotional materials, such as posters and aisle displays. Promotional materials cost $30 per record store. In addition, shipping costs average $0.28 per CD.
Total completed production was 500,000 CDs during the year. Other information is as follows:

Factory overhead cost is applied to jobs at the rate of $1,800 per copy machine hour. There were an additional 18,000 copied CDs, packages, and inserts waiting to be assembled on December 31, 20Y8.
Prepare an annual income statement for the Cyclone Panic CD, including supporting calculations, from the information above.

To determine

Concept Introduction:

Income statement is a part of financial statements of a company which provides a true and fair view of the working of the company's earnings and growth. It gives the net income or profit after adjustments of all expenses.

To prepare:

An income statement for the CP CD of R Inc for the year ended December 31,20Y8.


RT Inc.

Income Statement

for the year ended December 31,20Y8

    Particulars  ($)Amount
    Sales Revenue  3,800,000
    Total Revenue  3,800,000
    Less: Expenses
    Cost of goods sold  807,500
    Shipping cost expense  133,000
    Promotional expense  1,500,000
    Legal cost expense  175,000
    Advertising expense  1,000,000
    Total Expenses  (3,615,500)
    Net Income  184,500

Working Notes:

The sales revenue is computed as:


Computation of cost of goods sold:

    Direct Material  Cost=(($0

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