Display Labs Inc. recently began production of a new product, flat panel displays, which required the investment of $1,800,000 in assets. The costs of producing and selling 9,000 units of flat panel displays are estimated as follows:

Display Labs Inc. is currently considering establishing a selling price for flat panel displays. The president of Display 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.
1. Determine the amount of desired profit from the production and sale of flat panel displays.
2. 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.
3. Appendix: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).
4. Appendix:Assuming that the variable 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).
5.  Comment on any additional considerations that could influence establishing the selling price for flat panel displays.

6. Assume that as of August 1, 2012, 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 product cost concept. On August 3, Dis-play Labs Inc. received an offer from Video Systems Inc. for 1,500 units of flat panel displays at $225 each. Video 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 Display 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 of the proposed sale to Video Systems Inc.
b. Based on the differential analysis in part (a), should the proposal be accepted?

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Variable costs per unit: Direct materials Direct labor Factory overhead Selling and administrative expenses Total Fixed costs: Factory overhead $ 90 $360,000 Selling and administrative expenses 20 180,000 40 35 $185