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
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:
Instructions
Determine the balances in the work-in-process and finished goods inventories for the Cyclone Panic CD on December 31, 20Y8.
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Chapter 10 Solutions
Survey of Accounting (Accounting I)
- 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. Instructions Prepare an annual income statement for the Cyclone Panic CD, including supporting calculations, from the information above.arrow_forwardClassify costs Seymour Clothing Co. manufactures a variety of clothing types for distribution to several major retail chains. The following costs are incurred in the production and sale of blue jeans: Shipping boxes used to ship orders Consulting fee of 200,000 paid to industry specialist for marketing advice Straight-line depreciation on sewing machines Salesperson's salary, 10,000 plus 2% of the total sales Fabric Dye Thread Salary of designers Brass buttons Legal fees paid to attorneys in defense of the company in a patent infringement suit, 50,000 plus 87 per hour Insurance premiums on property, plant, and equipment, 70,000 per year plus 5 per 30,000 of insured value over 8,000,000 Rental costs of warehouse, 5,000 per month plus 4 per square foot of storage used Supplies Leather for patches identifying the brand on individual pieces of apparel Rent on plant equipment, 50,000 per year Salary of production vice president Janitorial services, 2,200 per month Wages of machine operators Electricity costs of 0.10 per kilowatt-hour Property taxes on property, plant, and equipment Instructions Classify the preceding costs as either fixed, variable, or mixed. Use the following tabular headings and place an X in the appropriate column. Identify each cost by letter in the cost column.arrow_forwardUse the following information for Brief Exercise: Morning Smiles Coffee Company manufactures Stoneware French Press coffee makers and sold 8,000 coffee makers during the month of March at a total cost of 612,500. Each coffee maker sold at a price of 100. Morning Smiles also incurred two types of selling costs: commissions equal to 5% of the sales price and other selling expense of 45,000. Administrative expense totaled 47,500. 2-33 Income Statement Percentages Refer to the information for Morning Smiles Coffee Company on the previous page. Required: Prepare an income statement for Morning Smiles for the month of March and calculate the percentage of sales revenue represented by each line of the income statement. (Note: Round answers to one decimal place.)arrow_forward
- Cost Identification and Analysis, Cost Assignment, Income Statement Melissa Vassar has decided to open a printing shop. She has secured two contracts. One is a 5-year contract to print a popular regional magazine. This contract calls for 5,000 copies each month. The second contract is a 3-year agreement to print tourist brochures for the state. The state tourist office requires 10,000 brochures per month. Melissa has rented a building for 1,400 per month. Her printing equipment was purchased for 40,000 and has a life expectancy of 20,000 hours with no salvage value. Depreciation is assigned to a period based on the hours of usage. Melissa has scheduled the delivery of the products so that two production runs are needed. In the first run, the equipment is prepared for the magazine printing. In the second run, the equipment is reconfigured for brochure printing. It takes twice as long to configure the equipment for the magazine setup as it does for the brochure setup. The total setup costs per month are 600. Insurance costs for the building and equipment are 140 per month. Power to operate the printing equipment is strongly related to machine usage. The printing equipment causes virtually all the power costs. Power costs will run 350 per month. Printing materials will cost 0.40 per copy for the magazine and 0.08 per copy for the brochure. Melissa will hire workers to run the presses as needed (part-time workers are easy to hire). She must pay 10 per hour. Each worker can produce 20 copies of the magazine per printing hour or 100 copies of the brochure. Distribution costs are 500 per month. Melissa will receive a salary of 1,500 per month. She is responsible for personnel, accounting, sales, and productionin effect, she is responsible for administering all aspects of the business. Required: 1. What are the total monthly manufacturing costs? 2. What are the total monthly prime costs? What are the total monthly prime costs for the regional magazine? For the brochure? 3. What are the total monthly conversion costs? Suppose Melissa wants to determine monthly conversion costs for each product. Assign monthly conversion costs to each product using direct tracing and driver tracing whenever possible. For those costs that cannot be assigned using a tracing approach, you may assign them using direct labor hours. 4. Melissa receives 1.80 per copy of the magazine and 0.45 per brochure. Prepare an income statement for the first month of operations.arrow_forwardSegmented Income Statement, Management Decision Making FunTime Company produces three lines of greeting cards: scented, musical, and regular. Segmented income statements for the past year are as follows: Kathy Bunker, president of FunTime, is concerned about the financial performance of her firm and is seriously considering dropping both the scented and musical product lines. However, before making a final decision, she consults Jim Dorn, FunTimes vice president of marketing. Required: 1. CONCEPTUAL CONNECTION Jim believes that by increasing advertising by 1,000 (250 for the scented line and 750 for the musical line), sales of those two lines would increase by 30%. If you were Kathy, how would you react to this information? 2. CONCEPTUAL CONNECTION Jim warns Kathy that eliminating the scented and musical lines would lower the sales of the regular line by 20%. Given this information, would it be profitable to eliminate the scented and musical lines? 3. CONCEPTUAL CONNECTION Suppose that eliminating either line reduces sales of the regular cards by 10%. Would a combination of increased advertising (the option described in Requirement 1) and eliminating one of the lines be beneficial? Identify the best combination for the firm.arrow_forwardService Organization Income Statement Healing Hands Massage Hut offers high-end, specialized massages and grooming services, including manicures, pedicures, facials, and full-body massages. Healing Hands is a new startup service organization that generates monthly sales of 200,000. As a startup organization, Healing Hands spends 5,000 a month on advertising in local newspapers and on social media sites. In addition, each month Healing Hands spends 100,000 to pay its team of highly specialized massage therapists, and 10,000 to a technology company (to handle the companys website, massage appointment scheduling activities, and customer communications). Further, the company incurs a 15,000 monthly expense to rent its hut space in a hip new retail market. Finally, Healing Hands incurs 20,000 of monthly administrative expenses. Required: 1. Prepare an income statement for Healing Hands for the past month. 2. Briefly explain why Healing Hands income statement has no line item for cost of goods sold.arrow_forward
- Cost Classification, Income Statement Gateway Construction Company, run by Jack Gateway, employs 25 to 30 people as subcontractors for laying gas, water, and sewage pipelines. Most of Gateways work comes from contracts with city and state agencies in Nebraska. The companys sales volume averages 3 million, and profits vary between 0 and 10% of sales. Sales and profits have been somewhat below average for the past 3 years due to a recession and intense competition. Because of this competition, Jack constantly reviews the prices that other companies bid for jobs. When a bid is lost, he analyzes the reasons for the differences between his bid and that of his competitors and uses this information to increase the competitiveness of future bids. Jack believes that Gateways current accounting system is deficient. Currently, all expenses are simply deducted from revenues to arrive at operating income. No effort is made to distinguish among the costs of laying pipe, obtaining contracts, and administering the company. Yet all bids are based on the costs of laying pipe. With these thoughts in mind, Jack looked more carefully at the income statement for the previous year (see below). First, he noted that jobs were priced on the basis of equipment hours, with an average price of 165 per equipment hour. However, when it came to classifying and assigning costs, he needed some help. One thing that really puzzled him was how to classify his own 114,000 salary. About half of his time was spent in bidding and securing contracts, and the other half was spent in general administrative matters. Required: 1. Classify the costs in the income statement as (1) costs of laying pipe (production costs), (2) costs of securing contracts (selling costs), or (3) costs of general administration. For production costs, identify direct materials, direct labor, and overhead costs. The company never has significant work in process (most jobs are started and completed within a day). 2. Assume that a significant driver is equipment hours. Identify the expenses that would likely be traced to jobs using this driver. Explain why you feel these costs are traceable using equipment hours. What is the cost per equipment hour for these traceable costs?arrow_forwarda company merchandising business. The company is specialized in selling a specific brand of smartphones. The purchase cost per unit was OMR300. At the beginning of the month of May the company has inventory of 1,250 smartphones. During the month of May, the company purchased additional 1,000 smartphones. By the end of May, the company had 450 smartphones remaining in the store. The selling and general expenses for the company include wages and commissions, which include fixed monthly payment of OMR1,500 plus a OMR8 per unit sold; and depreciation of OMR2,000 per month. Assuming a selling price per unit of OMR600, calculate the total contribution margin. Select one: a. OMR525,600 b. OMR365,000 c. None of the given answers d. OMR522,100 e. OMR540,000arrow_forwardProblem Situation: MVM Corporation seeks to partner with another company by letting them use and sell our software platform as a service, white labeled, in exchange for a revenue share. Data Price per customer 40,000 Revenue share (to us) 40% Total new customers 3 in first year, then 25 in year 2, then 100 in year 3, then 175 in year 4. Support rep cost per account 2,000 Hosting cost per account 500 New office for whitelabel team (annual) 75,000 Overhead payroll for whitelabel team (annual) 600,000 Capex buildout of whitelabeling platform 750,000 Find: (1) Revenue (2) COGS (3) Gross Profit (4) Gross Profit margin (5) Operating expenses (6) Operating income Assumptions: (1) Taxes 35% (2) Useful life of CAPEX 4 yearsarrow_forward
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