Use the following information to calculate the sales price of a boat under both GAAP and for internal decision purposes:
Number of boasts 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
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
Multiple Choice
a. Option A
b. Option B
c. Option C
d. Option D

Question

09-12-2022
Business

Answered

Use the following information to calculate the sales price of a boat under both GAAP and for internal decision purposes:
Number of boasts 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
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
Multiple Choice
a. Option A
b. Option B
c. Option C
d. Option D

Answer :

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smecloudbird18 smecloudbird18 · Answer 1 · 2022-12-17T23:23:15-05:00

Answer: a. Option A is correct. The sales price under GAAP would be $120,000, which is 20% more than the cost to produce the boat ($50,000 + $30,000 + $20,000 = $100,000, 20% of which is $20,000).

The sales price for internal decision purposes would be $136,800, which is calculated by adding the upstream and downstream costs to the cost to produce the boat, then multiplying by 1.2 ($5,000,000 + $2,000,000 + $100,000 = $7,100,000; 1.2 x $7,100,000 = $136,800).

Upstream works include the exploration and production of crude oil and natural gas, whilst downstream refers to the processes applied after extraction through to it being delivered to the customer in whatever format required.

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