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 $1,000,000 on a media campaign for Cyclone Panic and $175,000 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	$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 can copy 3,600 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 $0.37 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 record store. In addition, shipping costs average $0.28 per CD.

Total completed production was 500,000 CDs 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, 20Y8.

Instructions:

1. Prepare an annual income statement for the Cyclone Panic CD, including supporting calculations, from the information above. Round units costs to the nearest cent, if rounding is required.

R-Tunes Inc. Cyclone Panic CD
Income Statement
For the Year Ended December 31, 20Y8
Sales			$fill in the blank 2ffc45f76fe5fcc_2
Cost of goods sold			fill in the blank 2ffc45f76fe5fcc_4
Gross profit			$fill in the blank 2ffc45f76fe5fcc_5
Selling expenses:
Promotional materials	$fill in the blank 2ffc45f76fe5fcc_7
Media campaign	fill in the blank 2ffc45f76fe5fcc_9
Shipping expenses	fill in the blank 2ffc45f76fe5fcc_11
Total selling expenses		$fill in the blank 2ffc45f76fe5fcc_12
Administrative expenses
Legal expenses		fill in the blank 2ffc45f76fe5fcc_14
Total operating expenses			fill in the blank 2ffc45f76fe5fcc_15
Operating income			$fill in the blank 2ffc45f76fe5fcc_16
Manufacturing cost per unit (CD):
Direct materials:
Blank CD		$fill in the blank 2ffc45f76fe5fcc_18
Case		fill in the blank 2ffc45f76fe5fcc_20
Song lyric insert		fill in the blank 2ffc45f76fe5fcc_22
Total direct materials			$fill in the blank 2ffc45f76fe5fcc_23
Direct labor			fill in the blank 2ffc45f76fe5fcc_25
Factory overhead			fill in the blank 2ffc45f76fe5fcc_27
Total manufacturing cost per CD			$fill in the blank 2ffc45f76fe5fcc_28

Feedback

1. (a) Calculate the sales amount. (b) Calculate the manufacturing cost per unit. Calculate the overhead cost per unit by dividing the rate per copy machine hour by CDs per hour. (c) Multiply the manufacturing cost per unit with the number of units sold. (d) Multiply sales with the commission rate.

2. Determine the balances in the work-in-process and finished goods inventories for the Cyclone Panic CD on December 31, 20Y8. When performing intermediate calculations, round unit costs to the nearest cent.

Finished Goods balance, December 31, 20Y8	$fill in the blank 537aedf7afed07e_1
Work in Process, December 31, 20Y8	$fill in the blank 537aedf7afed07e_2