Flow of Costs and Income Statement

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, 20Y8. For the first six months of 20Y8, the company spent $759,000 on a media campaign for Cyclone Panic and $228,000 in legal costs. The CD production began on April 1, 20Y8.

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	$1.40
Case	0.50
Song lyric insert	0.50

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 can copy 600 CDs per hour.

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 $0.20 per CD.

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 store. In addition, shipping costs average $0.20 per CD.

Total completed production was 253,000 units during the year. Other information is as follows:

Number of customers (record stores)	10,800
Number of CDs sold	215,100
Wholesale price (to record store) per CD	$12

Factory overhead cost is applied to jobs at the rate of $300 per copy machine hour. There were an additional 63,250 copied CDs, packages, and inserts waiting to be assembled on December 31, 20Y8.

Income statement For the Year Ended December 31, 20 Y8 Sales Cost of aoods sold Gross poft Gross profit Selling expenses: Administrative expenses: Legal expenses X Total operating expenses Income from operations Manufacturing cost per unit (CD): Direct materials: Blank CD Case Song lyric insert Total direct materials Direct labor x Factory overhead x Total manufacturing cost per CD Finished Goods balance, December 31, 20Y8 \$ Work in Process balance, December 31, 20Y8 $