Answer:
Since the question involves multiple steps, please refer to the explanation section for a point-wise answer
Explanation:
(a) Imagine a "stream" to mean the flow of the product from the inception of the idea to the sale of the final output. Therefore, upstream and downstream costs are those are those that club various segments of cost during the manufacturing & selling process on the basis of when the cost is incurred in this cycle. Up-stream costs include the costs incurred before the beginning of the manufacturing process. Therefore, product design, structuring of packaging, R&D are all considered upstream costs. Downstream costs are incurred during the production process and the subsequent sale and customer service expenses. In the context of the question, Upstream costs for Fanning Manufacturing would be R&D expenses. Downstream cost include Manufacturing costs, packaging, shipping, and sales commission.
(b) Cost of Goods Sold (COGS) would be the amount of units sold (i.e $407,000) multiplied by the manufacturing costs ($66). Therefore, COGS would be $26,862,000.
A total of 446,000 units were produced which means the inventory costs (units x manufacturing costs) would be $29,436,000. Out of this $26,862,000 were expensed out as COGS. Therefore, ending inventory balance would be the differential amount of $2,574,000.
(c) Fanning wants to earn a profit margin of 30% of the total cost of developing, making and distributing the batteries. Therefore the company wants a profit equivalent to 30% of all the costs incurred from R&D to sales commission. Total cost is COGS+Selling, Packaging, shipping, sales commission + R&D which is $94,518,000. 30% of this is $28,355,400. So, sales revenue should be this amount PLUS all the costs incurred which would be $122,873,400 (<em>this is assuming no other expenses like interest and taxes and other income).</em>
Sales per unit (or sales price) would therefore be $122,873,400/407,000 units sold = 301.9 ≅ $302 per unit
(d)
Sales 122,914,000.00
Cost of Goods Sold (26,862,000.00)
Gross Profit 96,052,000.00
Selling, General & Administrative Expenses (3,256,000.00)
Research & Development (64,400,000.00)
Operating Profit/Net Profit 28,396,000.00
Note: <u>Again, this is assuming no other income and expenses. Since interest and tax expenses are assumed to be zero, operating income is equal to net income</u>
