Power-To-Spare, Inc. makes a smartphone case that includes a battery that extend
ID: 2579361 • Letter: P
Question
Power-To-Spare, Inc. makes a smartphone case that includes a battery that extends the operating life of an iPhone. The manufacturing costs per unit include $15 direct materials, $17 direct labor, and $8 manufacturing overhead. These costs are based on a production and sales volume of 4,000 units. Advertising costs amounted to $25,000. Research and development cost for the materials used in the phone cases amounted $30,000. Companywide administrative costs amounted to $45,000. Fashion design costs amounted to $20,000. Power-To-Spare’s management team established the sales price at 150 percent of GAAP-defined product cost.
Required
Determine the total amount of upstream costs.
a. Determine the total amount of downstream cost.
b. Determine the total amount of midstream cost.
c. Determine the sales price per unit.
d. Prepare a GAAP-based income statement.
Complete this question by entering your answer in the tabs below Req A to D Req E Determine the total amount of Upstream, Downstream, Midstream, and Sales price per unit cost a. Upstream cost b. Downstream cost c. Midstream cost d. Sales price per unit $ 50,000 $ 160,000 $ 70,000Explanation / Answer
Upstream costs : These costs are those which are incurred prior to production process beginning. The costs which incurred to searching for suitable raw material, suitable market etc. Eg. Research and development costs, Fashion design cost.
Downstream costs : These costs are incurred for processing the raw materials till the time the finished goods are prepared and then selling these to the customers. Eg. Material costs, labour etc.
Midstream Costs : The costs which are not covered in above 2, are midstream costs like office administration costs.
Considering the above definitions, the calculations are as follows:
Upstream Costs : Research and Development costs 30,000
Fashio desing costs 20,000
Total 50,000
Downstream Costs :
Material 60,000 (15x4,000)
Labour 68,000 (17x4,000)
Overheads 32,000 (8x4,000)
Total 160,000
MIdstream costs : Advertisement Costs 25,000
Companywide admin costs 45,000
70,000
4. Calculation of GAAP defined Product cost:
Product cost is that which is incurred to manufacture a product. These include Material, Labour, Manufacturing Overheads.
Material 60,000 (15x4,000)
Labour 68,000 (17x4,000)
Overheads 32,000 (8x4,000)
Total 160,000
Number of units 4,000
Product cost per unit $40/unit
Sale price (150% of Product cost) $60/unit (40x150%)
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