Question

During 2017, Campbell Manufacturing Company incurred $62,400,000 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 $62 per unit. Packaging, shipping, and sales commissions are expected to be $9 per unit. Campbell expects to sell 1,300,000 batteries before new research renders the battery design technologically obsolete. During 2017, Campbell made 433,000 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 Campbell 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 2017. Use the sales price developed in Requirement c.

Answer 1

Answer
1	upstream and downstream costs
	research and development cost	upstream cost
	packaging	downstream cost
	shipping	downstream cost
	sales commission	downstream cost
2.a)	cost of goods sold
	(392000*62)	24304000
b)	inventory
	(433000-392000*62)	2542000
3	sale price
	r&d(62400000/1300000)	48
	manufacturing cost	62
	selling cost	9
		119
	gross profit = 25%	29.75
	sale price	148.75
4	Income statement
	sales revenue	58310000
	less: cost of goods sold	-24304000
	gross margin	34006000
	less: selling expense	-3528000
	less:research and development	-62400000
	loss	-31922000