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During 2014, Welch Manufacturing Company incurred $115,000,000 of research and development (R&D)...

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During 2014, Welch Manufacturing Company incurred $115,000,000 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 2014. Manufacturing costs (direct materials, direct labor, and overhead) are expected to be $264 per unit. Packaging, shipping, and sales commissions are expected to be $53 per unit. Welch expects to sell 2,500,000 batteries before new research renders the battery design technologically obsolete. During 2014, Welch made 446,000 batteries and sold 397,000 of them.

a.) Determine the 2014 amount of cost of goods sold and the ending inventory balance. -Cost of Goods Sold -Ending Inventory

b.) Determine the sales price assuming that Welch desires to earn a profit margin that is equal to 30 percent of the total cost of developing, making, and distributing the batteries. (Round your answer to 2 decimal places.) -Sales Price

Cost of Goods Sold:

The cost of goods sold is the amount of expense that has been incurred in the production of goods and services. It takes into consideration the cost of those goods that have been sold to the customer.

Answer and Explanation:

a.)

Accounts Amount
Cost of goods produced (WN 1) 117,744,000
Less: Ending inventory (WN 2) 12,936,000
Cost of goods sold 104,808,000
Ending inventory 12,936,000


b.)

Accounts Amount
Research & Development costs 115,000,000
Add: Manufacturing costs (WN 3) 660,000,000
Add: Packaging, shipping & sales commission (WN 4) 132,500,000
Total costs 907,500,000
Add: Gross margin @ 30% 272,250,000
Total sales 1,179,750,000
Number of units 2,500,000
Sales per unit (WN 5) 471.90

Hence, the selling price per battery is $471.90.

Working Notes:

1. (Cost of goods produced = 446,000 * 264 = 117,744,000)

2. (Ending inventory = (446,000 - 397,000) * 264 = 12,936,000)

3. (Manufacturing costs = 2,500,000 * 264 = 660,000,000)

4. (Packaging, shipping & sales commission = 2,500,000 * 53 = 132,500,000)

5. (Sales per unit = {eq}\dfrac{1,179,750,000}{2,500,000} {/eq} = $471.90)


Learn more about this topic:

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How to Calculate Gross Profit Margin: Definition & Formula

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