Ginocera Inc. is a designer, manufacturer, and distributor of low-cost, high-quality stainless...


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 $587,000 to develop a late-night advertising infomercial for the new product. During 20Y8, the company spent $1,394,000 advertising the product through these infomercials. In addition, the company incurred $810,000 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) $3.90
Wood (for handle) $1.40
Packaging $0.55

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 $0.40 per unit.

The knives are sold to stores. Each store is given promotional materials such as posters and aisle displays. Promotional materials cost $58 per store. In addition, shipping costs average $0.15 per knife.

Total completed production was 1,232,000 units during the year. Other information is as follows:

Number of customers (stores) 60,000
Number of knives sold 1,145,000
Wholesale price (to store) per knife $16

Factory overhead cost is applied to jobs at the rate of $650 per stamping machine hour after the knife blanks are stamped. There were an additional 23,000 stamped knives, handles, and cases waiting to be assembled on December 31, 20Y8.


1) 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. Be sure to complete the statement heading.)

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.)

Income Statement:

The income statement is one of the most significant financial statements made by the companies where the companies show their financial performance over an accounting period.

Answer and Explanation:

Income Statement

Particulars Amount$ Amount$
Sales(1,145,500x16) 18,320,000
Less:- cost of goods sold(1,145,500x8.85) 10,133,250
Gross profit 8,186,750
Selling expense
informecial campaign(587,000+1,394,000) 1,981,000
promotional materials(60,000x58) 3,480,000
shipping expenses(1,145,000)x(0.15) 171,750
total selling expenses 5,632,750
administrative expense
legal expene 810,000
total selling and administrative expenses 6,442,750
Income from operations 1,740,000

Income from operations is =$1,740,000

Working notes:

Manufacturing cost per knife

Particulars amount$
direct materialsl:
hardened steel 3.90
wood 1.40
packing 0.55
total direct materials 5.85
direct labor 0.40
factory overhead(650/250) 2.6
total manufacturing cost per knife 8.85


Calculate balances of work in process and finishes goods inventories.

finished goods (1,232,000-1,145,000)x8.85 769,950
work in progress(23,000x(5.85+2.6) 194,350

Learn more about this topic:

How to Make an Income Statement: Example & Analysis

from Accounting 201: Intermediate Accounting I

Chapter 5 / Lesson 6

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