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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Flow of costs and income statement

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 $600,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $1,400,000 advertising the product through these infomercials. In addition, the company incurred $800.000 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) 1.50
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 in a decorative box. The direct labor cost is $0.50 per unit.

The knives are sold to stores. Each store is given promotional materials sudi as posters and aisle displays. Promotional materials cost $60.00 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, 20Y8.

Instructions

1. Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided.

2. Determine the balances in the work in process and finished goods inventories for the Kitchen .Ninja knife series on December 31, 20Y8.

(1)

To determine

Income statement:

The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

To prepare: annual income statement of Company G.

Explanation

The annual income statement is prepared as follows:

Company G
Income statement
For the month ended December 31, 20Y8
  Amount
($)
Amount
($)
Amount
($)
SalesTable (2)     17,920,000
Less: Cost of goods soldTable (4)     10,864,000
Gross profit     7,056,000
Less:      
Selling expenses:      
    Infomercial campaign(1) 2,000,000    
    Promotional materials(2) 3,600,000    
    Shipping expenses(3) 224,000    
Total selling expenses   5,824,000  
       
Administrative expenses:      
    Legal expenses   800,000  
Total operating expenses     6,624,000
Income from operations     432,000

Table (1)

Working notes:

Sales revenue is calculated as below:

  Amount
Number of knives sold (units) 1,120,000
× Selling price per knife $16
Sales revenue $17,920,000

Table (2)

Cost per unit is calculated as follows:

  Amount ($) Amount ($)
Direct materials:    
    Hardened steel blanks 4.00  
Wood (for handle) 1...

(2)

To determine
the ending balance, December 31 20Y8, in the work in process and finished goods inventories.

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