During 2017, Thornton Manufacturing Company incurred $70,000,000 of research and development (R&D) costs to create a long-life battery to use in computers. In accordance with FASB standards, the entire R&D cost was recognized as an expense in 2017. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $52 per unit. Packaging, shipping, and sales commissions are expected to be $10 per unit. Thornton expects to sell 1,400,000 batteries before new research renders the battery design technologically obsolete. During 2017, Thornton made 449,000 batteries and sold 392,000 of them. Required a. Identify the upstream and downstream costs. b. Determine the 2017 amount of cost of goods sold and the ending inventory balance that would appear on the financial statements that are prepared in accordance with GAAP. c. Determine the sales price assuming that Thornton desires to earn a profit margin that is equal to 20 percent of the total cost of developing, making, and distributing the batteries. d. Prepare a GAAP-based income statement for 2017. Use the sales price developed in Requirement c.

During 2017, Thornton Manufacturing Company incurred $70,000,000 of research and development (R&D) costs to create a long-life battery to use in computers. In accordance with FASB standards, the entire R&D cost was recognized as an expense in 2017. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $52 per unit. Packaging, shipping, and sales commissions are expected to be $10 per unit. Thornton expects to sell 1,400,000 batteries before new research renders the battery design technologically obsolete. During 2017, Thornton made 449,000 batteries and sold 392,000 of them. Required a. Identify the upstream and downstream costs. b. Determine the 2017 amount of cost of goods sold and the ending inventory balance that would appear on the financial statements that are prepared in accordance with GAAP. c. Determine the sales price assuming that Thornton desires to earn a profit margin that is equal to 20 percent of the total cost of developing, making, and distributing the batteries. d. Prepare a GAAP-based income statement for 2017. Use the sales price developed in Requirement c.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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