Question

Finch Inc. makes a smartphone case that includes a battery that extends the operating life of an iPhone. The manufacturing costs per unit include $13 direct materials, $15 direct labor and $8 manufacturing overhead. These costs are based on a production and sales volume of 5,000 units. Advertising costs amounted to $25,000. Research and development cost for the materials used in the phone cases amounted to $34,000. Companywide administrative costs amounted to $48,000. Fashion design costs amounted to $28,000. Finch's management team established the sales price at 150 percent of GAAP-defined product cost. Required a. Determine the total amount of upstream costs. b. Determine the total amount of downstream cost. c. Determine the total amount of midstream cost. d. Determine the sales price per unit. e. Prepare a GAAP-based income statement. Complete this question by entering your answer in the tabs below. Req A to D ReqE Determine the total amount of Upstream, Downstream, Midstream, and Sales price per unit cost. a Upstre Upstream cost Downstream cost Midstream cost Sales price per unit U d. Req A to D ReqE Prepare a GAAP-based income statement. FINCH INC. Income Statement General selling & administrative cost

Answer 1

Upstream costs are those costs undertaken before the units are sent to production. It includes research costs and cost of designing products.

Downstream costs are those costs incurred after products are sent to production or during production. It includes marketing, administration and advertising costs.

Midstream costs is also called cost of production and is the divider between upstream and downstream costs.

a	Research and development	$          34,000
	Fashion and design costs	$          28,000
	Upstream costs	$          62,000
b	Advertising costs	$          25,000
	Administration costs	$          48,000
	Downstream costs	$          73,000
c	Direct materials ( 5000 X 13)	$          65,000
	Direct labor ( 15 X 5000)	$          75,000
	Manufacturing overheads (8 X 5000)	$          40,000
	Midstream costs or cost of production	$        180,000
d	Direct material	$                  13
	Direct labor	$                  15
	Manufacturing overheads	$                     8
	Defined product costs	$                  36
	sales price (150% of 36)	$                  54

e.

GAAP based income statement
Sales revenue ( 54 X 5000)	$        270,000
Less :Cost of goods sold (36X 5000)	$        (180,000 )
Gross margin	$          90,000
General selling and administrative costs
Upstream costs	$        (62,000)
downstream costs	$        (73,000)
Net income (loss)	($ 45,000)