During year 1, Finch Manufacturing Company incurred $15,000,000 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 year 1. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $50 per unit. Packaging, shipping, and sales commissions are expected to be $18 per unit. Finch expects to sell 2,500,000 batteries before new research renders the battery design technologically obsolete. During year 1, Finch made 438,000 batteries and sold 392,000 of them. Required a. Identify the upstream and downstream costs. b. Determine the year 1 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 Finch desires to earn a profit margin that is equal to 30 percent of the total cost of developing, making, and distributing the batteries. d. Prepare a GAAP-based income statement for year 1. Use the sales price developed in Requirement c.

During year 1, Finch Manufacturing Company incurred $15,000,000 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 year 1. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $50 per unit. Packaging, shipping, and sales commissions are expected to be $18 per unit. Finch expects to sell 2,500,000 batteries before new research renders the battery design technologically obsolete. During year 1, Finch made 438,000 batteries and sold 392,000 of them. Required a. Identify the upstream and downstream costs. b. Determine the year 1 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 Finch desires to earn a profit margin that is equal to 30 percent of the total cost of developing, making, and distributing the batteries. d. Prepare a GAAP-based income statement for year 1. Use the sales price developed in Requirement c.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter14: Quality And Environmental Cost Management

Section: Chapter Questions

Problem 43P: The following environmental cost reports for 20x3, 20x4, and 20x5 (year end December 31) are for the...

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