Question
Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,300,000 in assets. The costs of producing
Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,300,000 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 | $121.00 |
3 | Direct labor | 28.00 |
4 | Factory overhead | 49.00 |
5 | Selling and administrative expenses | 37.00 |
6 | Total | $235.00 |
7 | Fixed costs: |
|
8 | Factory overhead | $254,000.00 |
9 | Selling and administrative expenses | 147,000.00 |
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 12% rate of return on invested assets.
Required: | |||||
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. | ||||
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. | ||||
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. | ||||
5. | Comment on any additional considerations that could influence establishing the selling price for flat panel displays. | ||||
6. | Assume that as of August 1, 3,000 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 2,000 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, Crystal Displays Inc. received an offer from Maple Leaf Visual Inc. for 900 units of flat panel displays at $221 each. Maple Leaf Visual Inc. will market the units in Canada under its own brand name, and no variable selling and administrative expenses associated with the sale will be incurred by Crystal Displays 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 factory, selling, and administrative capacity.
|
Labels | |
Cash flows from operating activities | |
Costs | |
Amount Descriptions | |
Cash payments for merchandise | |
Cash received from customers | |
Fixed manufacturing costs | |
Income (Loss) | |
Revenues | |
Variable manufacturing costs |
|
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 $346.40 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 $346.40.
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 |
|
|
|
|
6. B. Based on the differential analysis in part (A), should the proposal be accepted?
No
The company is indifferent since the result is the same regardless of which alternative is chosen.
Yes
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started