During Year $2,$ Gibson Manufacturing Company incurred $$102,500,000$ of research and development $($R&D$)$ costs to create a long$-$life battery to use in computers. In accordance with FASB standards, the entire R&D cost was recognized as an expense in Year $2.$ Manufacturing costs $($direct materials, direct labor, and overhead$)$ are expected to be $$54$ per unit. Packaging, shipping, and sales commissions are expected to be $$16$ per unit. Gibson expects to sell $2,500,000$ batteries before new research renders the battery design technologically obsolete. During Year $2,$ Gibson made $435,000$ batteries and sold $407,000$ of them.

Required

Identify the upstream and downstream costs.

Determine the Year $2$ 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.

Determine the sales price assuming that Gibson desires to earn a profit margin that is equal to $30$ percent of the total cost of developing, making, and distributing the batteries.

Prepare a GAAP$-$based income statement for Year $2.$ Use the sales price developed in Requirement $1.$ Research and development

$2.$ Packaging

$3.$ Shipping

$4.$ Sales commissions Cost of goods sold

Ending inventory Sales price Prepare a GAAP$-$based income statement for Year $2.$ Use the sales price developed in Requirement c$.$

Note: Do not round intermediate calculations.

GIBSON MANUFACTURING COMPANY

Income Statement

Net income $($loss$)$