#3

Crystal Displays 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 5,000 units of flat panel displays are estimated as follows:

1	Variable costs per unit:
2	Direct materials	$122.00
3	Direct labor	28.00
4	Factory overhead	48.00
5	Selling and administrative expenses	34.00
6	Total	$232.00
7	Fixed costs:
8	Factory overhead	$245,000.00
9	Selling and administrative expenses	148,000.00

Crystal Displays Inc. is currently considering establishing a selling price for flat panel displays. The president of Crystal Displays has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 13% 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 (rounded to two decimal places), and (c) the selling price of flat panel displays.

Cost amount per unit
Markup percentage	%
Selling price

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.

Cost amount per unit
Markup percentage	%
Selling price

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.

Cost amount per unit
Markup percentage	%
Selling price

5. Comment on any additional considerations that could influence establishing the selling price for flat panel displays.

The cost-plus approach price of $360 be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace, lead management to establish a short-run price more or less than $360.

6. A. Prepare a differential analysis of the proposed sale to Maple Leaf Visual Inc. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter 0. A colon (:) will automatically appear if required.

Differential Analysis

Reject Order (Alternative 1) or Accept Order (Alternative 2)

August 3

1		Reject Order	Accept Order	Differential Effect on Income
2		(Alternative 1)	(Alternative 2)	(Alternative 2)
3
4
5
6

Labels

Cash flows from operating activities

Costs

Amount Descriptions

Cash payments for merchandise

Cash received from customers

Fixed manufacturing costs

Income (Loss), per unitRevenues

Variable manufacturing costs