Answered: Prepare an annual income statement for…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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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 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 such 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.

Required:

Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided. Be sure to complete the statement heading. Refer to the list of Accounts, Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative. Expenses should be positive.*

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

*In your computations, if required, round interim per-unit costs to two decimal places.

Accounts, Labels and Amount Descriptions

Accounts
Cost of goods sold
Infomercial campaign
Legal expenses
Promotional materials
Sales
Shipping expenses
Labels
December 31, 20Y8
For the Month Ended December 31, 20Y8
For the Year Ended December 31, 20Y8
Amount Descriptions
Gross profit
Income from operations
Total selling expenses
Total operating expenses

Income Statement

1. Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided. Be sure to complete the statement heading. Refer to the list of Accounts, Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative. Expenses should be positive. In your computations, if required, round interim per-unit costs to two decimal places.

Ginocera Inc.

Income Statement

1
2
3
4	Selling expenses:
5
6
7
8
9	Administrative expenses:
10
11
12

Final Question

2. Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 20Y8. In your computations, if required, round interim per-unit costs to two decimal places.

Finished Goods
Work in Process

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