7 Use the following information to calculate the sales price

7 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 Upstream costs Direct materials per boat 50,000 Direct labor per boat Overhead per boat Downstream costs 500 $5,000,000 30,000 20,000 $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 Decision a) $120,000 $136,800 b) $136,800 $136,800 c) $120,000 $114,000 d) $136,800 $114,000 Prev 7f 7 Next>

Solution

Direct materials per boat $           50,000 Direct labor per boat $           30,000 Overhead per boat $           20,000 Upstream cost per unit $           10,000 5000000/500 Downstream cost per unit $             4,000 2000000/500 Total cost per unit $         114,000 Add: 20% Mark up $      22,800.00 Final sales price $         136,800 Since GAAP states the absorption costing for sales price, its price per unit as per GAAP should be $136,800 Also company is not willing to provide its goods less than 20% markup on full cost, so Under Internal decision making also price should be $136,800 Option B is right