Designer Software Inc. is a designer, manufacturer, and distributor of software for microcomputers. A
new product, Design 2012, was released for production and distribution in early 2012. In January,
$1,250,000 was spent on developing marketing and advertising materials. For the first six months of
2012, the company spent $1,200,000 promoting Design 2012 in trade magazines. The product was ready
for manufacture on January 21, 2012.
Designer Software uses a job order cost system to accumulate costs associated with each software title.
Direct materials unit costs are as follows:
Blank CD $0.60
The actual production process for the software product is fairly straightforward. First, blank CDs are
brought to a CD copying machine. The copying machine requires one hour per 2,500 CDs.
After the program is copied onto the CD, the CD is brought to assembly, where assembly personnel pack
the CD and manual for shipping. The direct labor cost for this work is $0.60 per unit.
The complete packages are then sold to retail outlets through a sales force. The sales force is compensated
by a 20% commission on the wholesale price for all sales. Total completed production was 250,000 units
during the year. Other information is as follows:
Number of software units sold in 2012 200,000
Wholesale price per unit $50
Factory overhead cost is applied to jobs at the rate of $3,000 per copy machine hour after the program is
copied to the CDs. There were an additional 10,000 copied CDs which already had the manual and
packaging (in other words, all materials were used) but were waiting to actually be packaged as of
December 31, 2012.
(a) Prepare the annual income statement for Design 2012 product, including supporting calculations,
given the information above.
(b) Determine the balances in the finished goods and work in process inventory for the Design 2012
product on December 31, 2012.
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