Ginocera Inc. is a designer, manufacturer, and distributor of low-cost, high-qua
ID: 2419704 • Letter: G
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 2016. In January, the company spent $600,000 to develop a late-night advertising infomercial for the new product. During 2016, the company spent $1,400,000 promoting the product through these infomercials, and $800,000 in legal costs. The knives were ready for manufacture on January 1, 2016.
Ginocera uses a job order cost system to accumulate costs associated with the kitchen knife. The unit direct materials cost 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 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 into 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 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, 2016.
Required:
A.
Prepare an annual income statement for the Kitchen Ninja knife series, including supporting calculations, from the information provided. Refer to the list of Amount Descriptions for exact wording of the answer choices for text entries.*
B.
Determine the balances in the work in process and finished goods inventories for the Kitchen Ninja knife series on December 31, 2016.*
* In your computations, if required, round interim per-unit costs to two decimal places.
Hardened steel blanks
(used for knife shaft and blade)
$4.00
Wood (for handle)
1.50
Packaging
0.50
Explanation / Answer
Given Particulars
Total Production during the year ( Units )
1200000
Additional units waiting to be assembled
25000
Total Units stamped ( Production + Wip )
1225000
Unit direct material cost for the knife
6
Hardened Steel Banks ( used for knife shift and blade )
4
Wood for handle
1.5
Packaging
0.5
Stamping Machine hour
1Hr per 250 Knives
Total No.of stamping hours ( (12,00,000 +25000) * 1 ) / 250
4900
Factory overhead rate per stamping hour
$ 800
Total Factory overheads
Machine hour * recovery rate
39,20,000
Direct Labour cost
$ 0.5 per unit produced
Total direct Labour cost ( 1200000 * 0.5 )
6,00,000
No.of Knives sold
11,20,000
Wholesale price to store per unit
16
Total Sales ( Selling price * units sold )
179,20,000
No.of stores
60,000
Promotional Material cost per store
60
Shipping cost per Kniife
0.2
Selling and distribution overheads
58,24,000
Promotional material to stores ( Per unit cost * no.of stores )
36,00,000
Shipping cost for knife ( Knives sold * shipping cost per unit )
2,24,000
Informercial Advertising Expenses
6,00,000
Promotion expenses of the product
14,00,000
Administration Overheads
8,00,000
Legal costs
8,00,000
WN 1
COST SHEET
SL.
Particulars
Amt in $
A
Direct Material
73,50,000
B
Direct Labour
6,00,000
C
Direct expenses
-
D
Prime cost
79,50,000
E
Factory Overheads
39,20,000
F
Factory cost
118,70,000
G
Add Opening WIP
-
H
Less Closing WIP
2,42,245
I
Works Cost
116,27,755
J
Administrtive overheads
8,00,000
K
Cost of Production
124,27,755
L
Add Opening stock of finished goods
-
M
Less Closing Stock of finished goods
8,28,517
N
Cost of goods sold
115,99,238
O
Selling and Distribution overheads
58,24,000
P
Total Cost
174,23,238
WN 2
Computation of bal work in progress cost for 25000 Units
Particulars
WIP Units
25000
Works cost for units calculated
1225000
Works cost for 1225000 Units
118,70,000
WIP cost for 25000 Units ( A * B / C )
242245
WN 3
Computation of bal closing stock of finished goods
A
Total goods produced
1200000
B
Total goods sold
1120000
C
Closing stock
80000
D
Cost of production for 12,00,000 units
124,27,755
E
Cost of Production for 80000 units ( C * E / A )
828517
Annual income statement for the Kitchen Ninja knife series
Sl.
Particulars
Amt in $
Amt in $
Gross sales
179,20,000
-
Less: Sales discount
-
Net Sales
179,20,000
Cost of Goods Sold:
A
Opening stock of Finished goods
-
B
Add: Cost of goods Manufactured
Opening Work In progress
-
Add Manufatcuring cost Incurred
Direct Materials
73,50,000
Direct Labour
6,00,000
Manufacturing Overhead
39,20,000
Indirect Labour
-
Insurance on Plant
-
Depreciation - Plant and Bldg
-
Repairs and Maintenance
-
C
Total Manufacturing costs
118,70,000
D
Less Work in progress inventory
2,42,245
E
Cost of goods manufactured ( C - D )
116,27,755
F
Cost of goods available for sale ( A + E )
116,27,755
G
Less closing stock
8,28,517
H
Cost of goods sold ( F - G )
107,99,238
I
Gross profit ( Sales - COGS )
71,20,762
Operating Expenses:
Selling Expenses:
Marketing Expenses
58,24,000
J
Total Selling Expenses:
58,24,000
General Expense:
Misc. general expenses
8,00,000
K
Total General Expense:
8,00,000
L
Total operating expenses ( K+ J )
66,24,000
Net profit from operations ( I - L )
4,96,762
Given Particulars
Total Production during the year ( Units )
1200000
Additional units waiting to be assembled
25000
Total Units stamped ( Production + Wip )
1225000
Unit direct material cost for the knife
6
Hardened Steel Banks ( used for knife shift and blade )
4
Wood for handle
1.5
Packaging
0.5
Stamping Machine hour
1Hr per 250 Knives
Total No.of stamping hours ( (12,00,000 +25000) * 1 ) / 250
4900
Factory overhead rate per stamping hour
$ 800
Total Factory overheads
Machine hour * recovery rate
39,20,000
Direct Labour cost
$ 0.5 per unit produced
Total direct Labour cost ( 1200000 * 0.5 )
6,00,000
No.of Knives sold
11,20,000
Wholesale price to store per unit
16
Total Sales ( Selling price * units sold )
179,20,000
No.of stores
60,000
Promotional Material cost per store
60
Shipping cost per Kniife
0.2
Selling and distribution overheads
58,24,000
Promotional material to stores ( Per unit cost * no.of stores )
36,00,000
Shipping cost for knife ( Knives sold * shipping cost per unit )
2,24,000
Informercial Advertising Expenses
6,00,000
Promotion expenses of the product
14,00,000
Administration Overheads
8,00,000
Legal costs
8,00,000
WN 1
COST SHEET
SL.
Particulars
Amt in $
A
Direct Material
73,50,000
B
Direct Labour
6,00,000
C
Direct expenses
-
D
Prime cost
79,50,000
E
Factory Overheads
39,20,000
F
Factory cost
118,70,000
G
Add Opening WIP
-
H
Less Closing WIP
2,42,245
I
Works Cost
116,27,755
J
Administrtive overheads
8,00,000
K
Cost of Production
124,27,755
L
Add Opening stock of finished goods
-
M
Less Closing Stock of finished goods
8,28,517
N
Cost of goods sold
115,99,238
O
Selling and Distribution overheads
58,24,000
P
Total Cost
174,23,238
WN 2
Computation of bal work in progress cost for 25000 Units
Particulars
WIP Units
25000
Works cost for units calculated
1225000
Works cost for 1225000 Units
118,70,000
WIP cost for 25000 Units ( A * B / C )
242245
WN 3
Computation of bal closing stock of finished goods
A
Total goods produced
1200000
B
Total goods sold
1120000
C
Closing stock
80000
D
Cost of production for 12,00,000 units
124,27,755
E
Cost of Production for 80000 units ( C * E / A )
828517
Annual income statement for the Kitchen Ninja knife series
Sl.
Particulars
Amt in $
Amt in $
Gross sales
179,20,000
-
Less: Sales discount
-
Net Sales
179,20,000
Cost of Goods Sold:
A
Opening stock of Finished goods
-
B
Add: Cost of goods Manufactured
Opening Work In progress
-
Add Manufatcuring cost Incurred
Direct Materials
73,50,000
Direct Labour
6,00,000
Manufacturing Overhead
39,20,000
Indirect Labour
-
Insurance on Plant
-
Depreciation - Plant and Bldg
-
Repairs and Maintenance
-
C
Total Manufacturing costs
118,70,000
D
Less Work in progress inventory
2,42,245
E
Cost of goods manufactured ( C - D )
116,27,755
F
Cost of goods available for sale ( A + E )
116,27,755
G
Less closing stock
8,28,517
H
Cost of goods sold ( F - G )
107,99,238
I
Gross profit ( Sales - COGS )
71,20,762
Operating Expenses:
Selling Expenses:
Marketing Expenses
58,24,000
J
Total Selling Expenses:
58,24,000
General Expense:
Misc. general expenses
8,00,000
K
Total General Expense:
8,00,000
L
Total operating expenses ( K+ J )
66,24,000
Net profit from operations ( I - L )
4,96,762
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