During Year $2,$ Gibson Manufacturing Company incurred $$85,500,000$ of research and development $($R&D$)$ costs to create a long$-$life battery to use in computers. In accordance with FASB standards, the entire R&D cost was recognized as an expense in Year $2.$ Manufacturing costs $($direct materials, direct labor, and overhead$)$ are expected to be $$46$ per unit. Packaging, shipping, and sales commissions are expected to be $$13$ per unit. Gibson expects to sell $1,900,000$ batteries before new research renders the battery design technologically obsolete. During Year $2,$ Gibson made $439,000$ batteries and sold $402,000$ 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 c$.$During Year $2,$ Gibson Manufacturing Company incurred $$85,500,000$ 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

$$46$ per unit. Packaging, shipping, and sales commissions are expected to be $$13$ per

unit. Gibson expects to sell $1,900,000$ batteries before new research renders the battery

design technologically obsolete. During Year $2,$ Gibson made $439,000$ batteries and sold

$402,000$ of them.

Required

a$.$ Identify the upstream and downstream costs.

b$.$ 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.

c$.$ 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.

d$.$ Prepare a GAAP$-$based income statement for Year $2.$ Use the sales price developed in

Requirement $c.$

Complete this question by entering your answers in the tabs below.

Required $A$

Determine the sales price assuming that Gibson desires to earn a profit margin that is equal

developing, making, and distributing the batteries.

Note: Do not round intermediate calculations. Round your final answer to $2$ decimal places.