Prepare an annual income statement for the Smashing Britney CD

PR 19-5A Digital Tunes Inc. is in the business of developing,
promoting, and selling musical talent on compact disc (CD). The company
signed a new group, called Smashing Britney, on January 1, 2010. For the
first six months of 2010, the company spent $4,000,000 on a media
campaign for Smashing Britney and $1,200,000 in legal costs. The CD
production began on February 1, 2010.
Digital Tunes uses a job
order cost system to accumulate costs associated with a CD title. The
unit direct materials cost for the CD is:
Blank CD…………. $1.80
Jewel case………….. 0.60
Song lyric insert…… 0.60
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 requires one hour per 2,400 CDs.
After
the CDs are copied, they are brought to an assembly area where an
employee packs the CD with a jewel case and song lyric insert. The
direct labor cost is $0.25 per unit.
The CDs are sold to record
stores. Each record store is given promotional materials, such as
posters and aisle displays. Promotional materials cost $40 per record
store. In addition, shipping costs average $0.25 per CD.
Total completed production was 1,000,000 units during the year. Other information is as follows:
Number of customers (record stores)………………….. 42,500
Number of CDs sold………………………………….. 850,000
Wholesale price (to record store) per CD…………………. $16
Factory
overhead cost is applied to jobs at the rate of $1,200 per copy machine
hour. There were an additional 25,000 copied CDs, packages, and inserts
waiting to be assembled on December 31, 2010.
Instructions
1.
Prepare an annual income statement for the Smashing Britney CD,
including supporting calculations, from the information above.
2. Determine the balances in the work in process and finished goods inventory for the Smashing Britney CD on December 31, 2010.

 

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