Concept explainers
a.
The total amount of upstream cost.
a.
Explanation of Solution
Upstream cost: This cost is incurred before starting the manufacturing process such as research and development, and product design.
The given information:
- Product design cost is $520,000.
- Research and development cost is $1,800,000.
The calculation of upstream cost is as follows:
Hence, the upstream cost is $2,320,000.
b.
The total amount of downstream cost.
b.
Explanation of Solution
Downstream: This cost is incurred after starting the manufacturing process such as marketing, distribution, and customer service
The given information:
- Advertisement cost is $400,000.
- Administrative cost is $250,000.
The calculation of downstream cost is as follows:
Hence, the downstream cost is $650,000.
c.
The total amount of midstream cost.
c.
Explanation of Solution
Mid-stream: It is a cost incurred in making a product. It includes direct labor, direct materials, and manufacturing
The given information:
- Direct materials are $450.
- Direct labor is $180
- Manufacturing overheads are $300.
- Total production is 5,000 units.
The calculation of midstream cost is as follows:
Hence, the midstream cost is $4,650,000.
d.
The total amount of sales price.
d.
Explanation of Solution
The given information:
- Direct materials are $450.
- Direct labor is $180
- Manufacturing overheads are $300.
- Total production is 5,000 units.
- 160% on GAPP defined product.
The calculation of sales price is as follows:
Hence, the sales price is $1,488.
e.
The income statement based on GAPP.
e.
Answer to Problem 23PSB
The calculation of income statement of Company D is as follows:
Hence, the company has a net loss of $180,000.
Explanation of Solution
Income statement:
Income statement is the financial statement of a company that shows all the revenues earned and expenses incurred by the company over a period of time.
The given information:
- Direct materials are $450.
- Direct labor is $180
- Manufacturing overheads are $300.
- Total production is 5,000 units.
- Product design cost is $520,000.
- Research and development cost is $1,800,000.
- Advertisement cost is $400,000.
- Administrative cost is $250,000.
The sales revenue is calculated as follows:
Hence, the sales revenue is $7,440,000.
(1)
The cost of goods sold is calculated as follows:
Hence, the cost of goods sold is $4,650,000.
(2)
f.
Explain the reason for the net loss.
f.
Explanation of Solution
The management failed to consider the cost of downstream and upstream while pricing the product. Only the cost of GAPP based prices were considered. The selling price of the product is $1,488 and the total cost price of the product is $1,524 (3). Therefore, the selling price is less than the cost per unit and this explains why the company is facing loss.
Working notes:
The total cost per unit is calculated as follows:
Hence, the total cost per unit is $1,524.
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Chapter 1 Solutions
Fundamental Managerial Accounting Concepts
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