Power-To-Spare, Inc. makes a smartphone case that includes a battery that extend

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.

A. Required Determine the total amount of upstream costs.

B. Determine the total amount of downstream cost.

C. Determine the total amount of midstream cost.

D. Determine the sales price per unit.

E. Prepare a GAAP-based income statement.

Explanation / Answer

A. Upstream costs: Research and development costs 30000 30000 B. Downstream costs: Advertising costs 25000 Administrative expenese 45000 Fashion design costs 20000 90000 C. Midstream costs: Direct material costs ($15 x 4000) 60000 Direct labor ($17 x 4000) 68000 Manufacturing overhead ($8 x 4,000) 32000 160000 D.Selling price: GAAP defines total product cost 160000 Product cost per unit $40.00 Selling price (150% of product cost) $60.00 E. GAAP based income statement Sales revenue ($60 x 4,000) 240000 Cost of goods sold ($40 x 4,000) 160000 Gross profit 80000 Less: Expenses: Research & development costs 30000 Advertising expenses 25000 Administrative expeses 45000 Fashion design costs 20000 Total costs 120000 Net income -40000

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