Question

Rooney Inc. makes a smartphone case that includes a battery that extends the operating life of an Phone. The manufacturing costs per unit include $13 direct materials, $14 direct labor, and $7 manufacturing overhead. These costs are based on a production and sales volume of 5.000 units. Advertising costs amounted to $28.000. Research and development cost for the materials used in the phone cases amounted $30.000. Companywide administrative costs amounted to $42,000 Fashion design costs amounted to $25,000. Rooney's management team established the sales price at 150 percent of GAAP-defined product cost.

Required
a. Determine the total amount of upstream costs
b. Determine the total amount of downstream cost.
c. Determine the total amount of midstream cost
d. Determine the sales price per unit.
e. Prepare a GAAP.based income statement.

Answer 1

The total upstream cost is $30,000; downstream costs amount to $95,000; and midstream costs are $170,000 for Rooney Inc. The sales price per unit is set at $51. An accurate GAAP-based income statement cannot be prepared without information on actual sales figures.

Step-by-step explanation:

Cost Classification and Pricing

Before calculating the various costs and setting the sales price for Rooney Inc.'s smartphone case, we need to classify the costs into upstream (pre-production), midstream (production), and downstream (post-production) costs.

a. Total Amount of Upstream Costs

The upstream costs include research and development costs for the materials used in the phone cases, which amount to $30,000. Since no other pre-production costs are mentioned, our total upstream cost is $30,000.

b. Total Amount of Downstream Costs

The downstream costs include advertising costs and companywide administrative costs, which are $28,000 and $42,000 respectively. The fashion design costs of $25,000 can also be considered downstream as they pertain to post-design marketing appeal. The total downstream cost is thus $28,000 + $42,000 + $25,000 = $95,000.

c. Total Amount of Midstream Costs

The midstream costs are the manufacturing costs: direct materials ($13), direct labor ($14), and manufacturing overhead ($7), which totals $34 per unit. Multiplied by 5,000 units, we have $34 * 5,000 = $170,000 in midstream costs.

d. Determine the Sales Price Per Unit

According to the information, the sales price is set at 150 percent of the GAAP-defined product cost, which includes direct materials, direct labor, and manufacturing overhead. Thus, the product cost per unit is $34. To get the sales price, we multiply the product cost by 150 percent: $34 * 1.5 = $51 per unit.

e. Prepare a GAAP-Based Income Statement

An income statement under GAAP would include revenues, cost of goods sold (midstream costs), and operating expenses (upstream and downstream costs). It would show net income or loss for the period. Since we haven't been given revenue figures except for the instruction on how to set the sales price, and no information has been provided on the actual number of units sold, we cannot accurately prepare an income statement without making assumptions on units sold or the sales mix.