4) Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for Accepting Additional Business

Display Labs Inc. recently began production of a new product, flat panel displays, which required the investment of $2,340,000 in assets. The costs of producing and selling 11,700 units of flat panel displays are estimated as follows:

Variable costs per unit:			Fixed costs:
Direct materials	$ 117		Factory overhead	$468,000
Direct labor	25		Selling and administrative expenses	234,000
Factory overhead	53
Selling and administrative expenses	46
Total	$241

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.

Required:

Note: Round all markup percentages to two decimal places. If required, round all costs per unit and selling prices per unit to the nearest cent.

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 the following:

The cost amount per unit.

The markup percentage.

The selling price of flat panel displays.

a. Cost amount per unit	$
b. Markup Percentage		%
c. Selling price per unit	$

3. Appendix Assuming that the total cost concept is used, determine the following:

The cost amount per unit.

The markup percentage.

The selling price of flat panel displays.

a. Cost amount per unit	$
b. Markup Percentage		%
c. Selling price per unit	$

4. Appendix Assuming that the variable cost concept is used, determine the following:

The cost amount per unit.

The markup percentage.

The selling price of flat panel displays.

a. Variable cost amount per unit	$
b. Markup Percentage		%
c. Selling price per unit	$

5. The cost-plus approach price of $341 Selectshouldshould notCorrect 11 of Item 1 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, SelectcouldwillCorrect 12 of Item 1 lead management to establish a short-run price more or less than $341.

b. Based on the differential analysis in part (a), should the proposal be accepted? SelectYesNoCorrect 1 of Item 3