Jackson Specialties: Units in Inventory

1. Jackson Specialties has been in business for more than 50 years. The company maintains a perpetual inventory system, uses a LIFO flow assumption, and ends its fiscal year at December 31. At year-end, the cost of goods sold and inventory are adjusted to reflect periodic LIFO costing procedures. A railroad strike has delayed the arrival of purchases ordered during the past several months of 2009, and Jackson Specialties has not been able to replenish its inventories as merchandise sold. At December 22, one product appears in the company's perpetual inventory records at the following unit costs:

Purchase Date Quantity Unit Cost Total Cost
Nov. 14,1956 ................................................. 3,000 $6 $18,000
Apr. 12, 1957 ................................................ 2,000 8 16,000
Available for sale at Dec. 22, 2009 ................ 5,000 $34,000

Jackson Specialties has another 8,000 units of this product on order at the current wholesale cost of $30 per unit. Because of the railroad strike, however, these units have not yet arrived (the terms of purchase are F.O.B. destination). Jackson Specialties also has an order from a customer who wants to purchase 4,000 units of this product at the retail sales price of $47 per unit. Jackson Specialties intends to make this sale on December 30, regardless of whether the 8,000 units on order arrive by this date. (the 4,000-unit sale will be shipped by truck, F.O.B. shipping point).

a) Are the units in inventory really more than 50 years old? Explain
b) Prepare a schedule showing the sales revenue, cost of goods sold, and gross profit that will result from this sale on December 30, assuming that the 8,000 units currently on order (1) arrive before year-end and (2) do not arrive until some time in the following year. (In each computation, show the number of units comprising the cost of goods sold and their related per-unit costs.)
c) Comment on these results.
d) Might management be wise to delay this sale by a few days? Explain

2. The pharmaceutical industry spends billions of dollars each year on research and development. Rather than capitalize these R&D expenditures as intangible assets, companies are requires to charge them to expense in the year incurred. Perform a keyword search of Pharmaceutical Companies using the search engine of your choice (e.g. Yahoo, Google).

Your search will result in a list of companies that research and develop pharmaceutical products. Select three of these companies and obtain their 10-K reports using the SEC's EDGAR system or going directly to the Web sites of the companies you choose.

a) For each of the companies you selected, determine:
1) Total R&D expense for the most current year.
2) Total R&D expense as a percentage of total operating costs and expenses.
3) Total R&D expense as a percentage of net sales.
4) The percentage by which operating income would have increased had the entire R&D expenditure been recorded as an intangible asset instead of being charged to expense.

b) Using information from the 10-K reports, summarize briefly the kinds of drugs being researched and developed by each of these companies. To a potential investor, which company appears to be the most innovative and promising? Explain.