Final answer:
To determine the net income under GAAP for selling 500 boats, the total production costs are calculated and then subtracted from the total revenue (sale price multiplied by the number of boats), accounting for a 20% markup on production costs. The net income is found to be $3,000,000.
Step-by-step explanation:
Determining Net Income under GAAP
To determine net income in the financial statements under GAAP using the provided information, we need to compute the total costs to produce the boats and the total revenue from the sale of the boats. The cost to produce each boat includes direct materials, direct labor, and overhead, and we need to account for upstream and downstream costs. We then consider that the company wants to sell each boat for 20% more than the cost to produce.
- Calculate the cost to produce one boat: $50,000 (direct materials) + $30,000 (direct labor) + $20,000 (overhead) = $100,000.
- Calculate the total cost to produce 500 boats: $100,000 per boat × 500 boats + $5,000,000 (upstream costs) + $2,000,000 (downstream costs) = $57,000,000.
- Calculate the selling price per boat: $100,000 + (20% of $100,000) = $120,000.
- Calculate total revenue from selling 500 boats: $120,000 per boat × 500 boats = $60,000,000.
- Subtract total costs from total revenues to get net income: $60,000,000 - $57,000,000 = $3,000,000.
Therefore, the net income under GAAP given the information would be $3,000,000.