Question

Use the following information to calculate the sales price of a boat under both GAAP and for internal decision purposes:

Number of boats to be sold 500
Upstream costs $5,000,000
Direct materials per boat $50,000
Direct labor per boat $30,000
Overhead per boat $ 20,000
Downstream costs $2,000,000
(1). Assume the company wants to sell each boat for 20% more than the cost to produce the boat. Which of the following would be the sales price under GAAP and for internal decision purposes?

GAAP Internal Decision
(A) $120,000 $136,800
(B) $ 136,800 $136,800
(C) $ 120,000 $114,000
(D)) $136,800 $ 114,000

Answer 1

(A) $120,000 ; $136,800

Step-by-step explanation:

The computation is shown below:

The sales price under GAAP would be

= (Direct materials per boat + Direct labor per boat + Overhead per boat) + (Markup percentage of total cost)

= ($50,000 + $30,000 + $20,000) + 20% × $100,000

= $100,000 + $20,000

= $120,000

The sales price under Internal decision purposes would be

= (Direct materials per boat + Direct labor per boat + Overhead per boat + Upstream costs per boat + downstream cost per boat ) + (Markup percentage of total cost)

= ($50,000 + $30,000 + $20,000 + $10,000 + $4,000) + 20% × $114,000

= $114,000 + $22,800

= $136,800

The upstream per boat would be

= $5,000,000 ÷ 500

= $10,000

And, the downstream per boar

= $2,000,000 ÷ 500

= $4,000