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1 September, 05:18

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

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Answers (1)
  1. 1 September, 05:23
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    (A) $120,000; $136,800

    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
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