R-Tunes Inc. is in the business of developing, promoting, and selling musical talent online and with compact discs (CDs). The company signed a new group, called Cyclone Panic, on January 1, 2012. For the first six months of 2012, the company spent $1,000,000 on a media campaign for Cyclone Panic and $175,000 in legal costs. The CD production began on April 1, 2012.

R-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 ...... $0.40

Case ........ 0.25

Song lyric insert ... 0.18

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 3,600 CDs.

After the CDs are copied, they are brought to an assembly area where an employee packs the CD with a case and song lyric insert. The direct labor cost is $0.37 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 $30 per record store. In addition, shipping costs average $0.28 per CD.

Total completed production was 500,000 units during the year. Other information is as follows:

Number of customers (record stores) . 50,000

Number of CDs sold ....... 475,000

Wholesale price (to record store) per CD . $8

Factory overhead cost is applied to jobs at the rate of $1,800 per copy machine hour. There were an additional 18,000 copied CDs, packages, and inserts waiting to be assembled on December 31, 2012.

Instruction

1. Prepare an annual income statement for the Cyclone Panic CD, including supporting calculations, from the information above.

2. Determine the balances in the work-in-process and finished goods inventories for the Cyclone Panic CD on December 31, 2012.