Flow of Costs and Income Statement
E-song Tunes Inc. is in the business of developing, promoting, and selling children's videos. The company developed a new DVD video, called Jake the Sleepy Old Dog, on January 1, 2016. For the first six months of 2016, the company spent $1,960,000 on a media campaign for Jake the Sleepy Old Dog and $588,000 in legal costs. The video production began on February 1, 2016.
E-song Tunes uses a job order cost system to accumulate costs associated with a DVD video title. The unit direct materials cost for the video is:
DVD video $1.6
Case 0.5
Story booklet and stuffed animal 0.5
The production process is straightforward. First, the blank DVDs are brought to a production area where the video is copied onto a DVD. The copying machine requires one hour per 1,320 DVDs.
After the DVDs are copied, they are brought to an assembly area where an employee packs the DVD in a case along with the story booklet and stuffed animal. The direct labor cost is $0.2 per unit.
The DVDs are sold to stores. Each store is given promotional materials, such as posters and aisle displays. Promotional materials cost $35 per store. In addition, shipping costs average $0.2 per DVD.
Total completed production was 560,000 units during the year. Other information is as follows:
Number of customers (stores) 23,800
Number of DVDs sold 476,000
Wholesale price (to store) per DVD $14
Factory overhead cost is applied to jobs at the rate of $660 per copy machine hour after the videos are copied to the DVDs. There were an additional 140,000 copied DVDs, cases, story booklets, and stuffed animals waiting to be assembled on December 31, 2016.
In your computations, if required, round interim per unit costs to two decimal places.
Required:
1. Prepare an annual income statement for the Jake the Sleepy Old Dog video.
2. Determine the balances in the work in process and finished goods inventory for the Jake the Sleepy Old Dog video on December 31, 2016.