R Tunes Inc is in the business of developing promoting

and #8888

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.

R Tunes Inc is in the business of developing promoting and

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