HD Labs Inc. recently began production of a new product, flat panel displays, which required the investment of $1,500,000 in assets. The costs of producing and selling

12,000 units of flat panel displays are estimated as follows:

HD Labs Inc. is currently considering establishing a selling price for flat panel displays. The president of HD Labs has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 20% rate of return on invested assets.
Instructions
1. Determine the amount of desired profit from the production and sale of flat panel displays.
2. Assuming that the total cost concept is used, determine
(a) The cost amount per unit,
(b) The markup percentage (rounded to two decimal places), and
(c) The selling price of flat panel displays (rounded to nearest whole dollar).
3. Assuming that the product cost concept is used, determine
(a) The cost amount per unit,
(b) The markup percentage, and
(c) The selling price of flat panel displays.
4. Assuming that the variable cost concept is used, determine
(a) The cost amount per unit,
(b) The markup percentage, and
(c) The selling price of flat panel displays.
5. Comment on any additional considerations that could influence establishing the selling price for flat panel displays.
6. Assume that as of August 1, 2010, 5,000 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 4,000 additional units are expected to be sold during the remainder of the year at the normal product price determined under the total cost concept. On August 3, HD Labs Inc. received an offer from Vision Systems Inc. for 1,500 units of flat panel displays at $235 each. Vision Systems Inc. will market the units in Canada under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by HD Labs Inc. The additional business is not expected to affect the domestic sales of flat panel displays, and the additional units could be produced using existing capacity.
(a) Prepare a differential analysis report of the proposed sale to Vision Systems Inc.
(b) Based on the differential analysis report in part (a), should the proposal beaccepted?

Transcribed Image Text:

Fixed costs: $140 30 50 25 $245 Variable costs per unit: Direct materials Direct labor Factory overhead Selling and administrative expenses Total Factory overhead Selling and administrative expenses $960,000 480,000