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	$122.00
3	Direct labor	29.00
4	Factory overhead	48.00
5	Selling and administrative expenses	37.00
6	Total	$236.00
7	Fixed costs:
8	Factory overhead	$252,000.00
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 17% 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 $230 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.

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.
B.	Based on the differential analysis in part (A), should the proposal be accepted?

Labels and Amount Descriptions

Labels
Cash flows from operating activities
Costs
Amount Descriptions
Cash payments for merchandise
Cash received from customers
Fixed manufacturing costs
Income (Loss), per unit
Revenues
Variable manufacturing costs

Starting Questions

Shaded cells have feedback.

1. Determine the amount of desired profit from the production and sale of flat panel displays.

Points:

0 / 1

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

Points:

0 / 3

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

Points:

0 / 3

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

Points:

0 / 3

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.

Points:

0 / 2

Feedback

Check My Work

1. Multiply the desired profit percentage by the desired amount (invested assets).

2. a. Divide the total manufacturing costs (direct labor, direct materials, and overhead) by the number of units produced.

b. Divide the desired profit plus the selling and administrative expenses by the total manufacturing costs.

c. Add cost (a) and mark-up [(a) x (b)].

3. a. Divide all variable and fixed costs by the number of units produced.

b. Divide the desired profit by the total costs.

c. Add cost (a) and mark-up [(a) x (b)].

4. a. Multiply the variable cost per unit by the number of units produced.

b. Divide the desired profit plus the total fixed costs by the total variable costs.

c. Add cost (a) and mark-up [(a) x (b)].

5. What other factors influence pricing decisions?

Differential Analysis

Shaded cells have feedback.

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.

Question not attempted.

Score: 0/53

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

Points:

0 / 13

Feedback

Check My Work

6. A. Subtract the additional manufacturing costs from the additional revenues. Determine the differential effect on income of the revenues, costs, and income (loss).

Final Question

Shaded cells have feedback.

6. B. Based on the differential analysis in part (A), should the proposal be accepted?

Yes

No

The company is indifferent since the result is the same regardless of which alternative is chosen.