Question

CUCU JUULUUSTULUI Catec During year 1, Rooney Manufacturing Company incurred $8,000,000 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 $45 per unit. Packaging, shipping, and sales commissions are expected to be $8 per unit. Rooney expects to sell 2,000,000 batteries before new research renders the battery design technologically obsolete. During year 1. Rooney made 440,000 batteries and sold 400,000 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 Rooney desires to earn a profit margin that is equal to 25 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. Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required 8 Required C Required D Prepare a GAAP-based Income statement for year 1. Use the sales price developed in Requirement c. (Do not round Intermediate calculations.) ROONEY MANUFACTURING COMPANY Income Statement Sales revenue $ 28,500,000 mm < Prev 4 of 4 Next

what is the selling expense

Answer 1

Ans.

Requirement A

Upstream Cost is the cost which incur before the manufacturing process started.

Research & Development Cost is upstream cost.

Downstream Cost is the cost which incur after the manufacturing process completed.

Pacakaging, Shipping and Sales Commission are downstream cost .

Requirement B

Cost of Goods Sold = (Units sold * Manufacturing cost ) = 400,000 * $ 45 = $ 18,000,000

Ending Inventory = (440,000 - 400,000) * $ 45 = 40,000 * $45 = 1,800,000

Requirement C

Selling Price per unit is $ 71.25

Manufacturing Exp. = $ 45

Packing,Shipping & Sales Commission = $ 8

Research & Development Cost per unit = $ 8,000,000 / 2,000,000 = $ 4

Total Cost = $ 45 + $ 8 + $ 4 = $ 57

Add: Profit (25% of cost i.e $57) = $ 14.25

Selling price per unit is $57 + $14.25 = $ 71.25

Requirement D

ROONEY MANUFACTURING COMPANY
INCOME STATEMENT
Sales Revenue (400,000 * $ 71.25)	$ 28,500,000.00
Cost of Goods Sold (400,000 * $ 45)	$ 18,000,000.00
	$ 10,500,000.00
Research & Development	$   8,000,000.00
Selling Expenses (400,000 * $8)	$   3,200,000.00
Net Income (Loss)	$     (700,000.00)