Question

Jordan Inc. makes a smartphone case that includes a battery that extends the operating life of an iPhone. The manufacturing costs per unit include $14 direct materials, $16 direct labor and $8 manufacturing overhead. These costs are based on a production and sales volume of 4,000 units. Advertising costs amounted to $24,000. Research and development cost for the materials used in the phone cases amounted $27,000. Companywide administrative costs amounted to $44,000. Fashion design costs amounted to $29,000. Jordan’s management team established the sales price at 150 percent of GAAP-defined product cost.

Required

1. Determine the total amount of upstream costs.

2. Determine the total amount of downstream cost.

3. Determine the total amount of midstream cost.

4. Determine the sales price per unit.

5. Prepare a GAAP-based income statement.

Answer 1

a.	Upstream costs	$           56,000
b.	Downstream costs	$           68,000
c.	Midstream costs	$ 152,000
d.	Sales price per unit	$                   57

Working:

a.	Upstream cost:
	Research and development cost	27000
	Fashion design costs	29000
	Total upstream costs $	56000
b.	Downstream cost:
	Advertising costs	24000
	Administrative costs	44000
	Total downtream costs $	68000
c.	Midstream cost:
	Direct materials (4000 x $14)	56000
	Direct labor (4000 x $16)	64000
	Manufacturing overhead (4000 x $8)	32000
	Total midstream costs $	152000
d.	Sales price per unit:
	Direct materials	14
	Direct labor	16
	Manufacturing overhead	8
	Unit product cost $	38
	Sales price per unit (150% x $38)	57

Upstream cost: Incurred prior to the production process

Downstream cost: Incurred after the completion of the production process in delivering the finished product to customers.

Jordan Inc.
Income Statement
Sales revenue (4000 x $57)	228000
Cost of goods sold (4000 x $38)	152000
Gross margin	76000
General selling and administrative cost
Downstream cost	68000
Upstream cost	56000
Net loss	-48000