1. Product Pricing using the Cost-Plus Approach Methods; Differential Analysis for Accepting Additional Business

   Digital Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $6,000,000 in assets. The costs of producing and selling 20,000 units of flat panel displays are estimated as follows:

   Variable costs per unit:

   Line Item Description	Amount
   Direct materials	$120
   Direct labor	30
   Factory overhead	50
   Selling and administrative expenses	35
   Total variable cost per unit	$235

   Fixed costs:

   Line Item Description	Amount
   Factory overhead	$1,000,000
   Selling and administrative expenses	400,000

   Digital Displays Inc. is currently considering establishing a selling price for flat panel displays. The president of Digital Displays has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 15% return on invested assets.

   Required:

   Question Content Area

   Note: Round all markup percentages to two decimal places, if required. Round all costs per unit and selling prices per unit to the nearest whole dollar.

   1. Determine the amount of desired profit from the production and sale of flat panel displays. fill in the blank 1 of 1$

   2. Assuming that the product cost method is used, determine the following:

   Line Item Description	Answer
   a. Cost amount per unit	$fill in the blank 84166800b07100d_2
   b. Markup percentage	fill in the blank 84166800b07100d_3 %
   c. Selling price per unit	$fill in the blank 84166800b07100d_4

   3. (Appendix) Assuming that the total cost method is used, determine the following:

   Line Item Description	Answer
   a. Cost amount per unit	$fill in the blank 84166800b07100d_5
   b. Markup percentage	fill in the blank 84166800b07100d_6 %
   c. Selling price per unit	$fill in the blank 84166800b07100d_7

   4. (Appendix) Assuming that the variable cost methodis used, determine the following:

   Line Item Description	Answer
   a. Variable cost amount per unit	$fill in the blank 84166800b07100d_8
   b. Markup percentage	fill in the blank 84166800b07100d_9 %
   c. Selling price per unit	$fill in the blank 84166800b07100d_10

   5. The cost-plus approach price computed above should be viewed as a general guideline for establishing long-run normal prices; however, other considerations, such as

   the price of competing products and general economic conditions of the marketplacefixed costs incurred and depreciation expense

   , could lead management to establish a different short-run price.

   Question Content Area

   6. Assume that as of October 31, 16,000 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 2,500 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost method. On November 5, Digital Displays Inc. received an offer from Andes Visual Inc. for 1,000 units of flat panel displays at $225 each. Andes Visual Inc. will market the units in Peru under its own brand name, and no variable selling and administrative expenses associated with the sale will be incurred by Digital 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 Andes Visual Inc. If an amount is zero, enter "0".

   Differential Analysis Reject (Alt. 1) or Accept (Alt. 2) Order November 5

   Line Item Description	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effects (Alternative 2)
   Revenues	$Revenues	$Revenues	$Revenues
   Costs:
   Variable manufacturing costs	Variable manufacturing costs	Variable manufacturing costs	Variable manufacturing costs
   Profit (loss)	$Profit (loss)	$Profit (loss)	$Profit (loss)

   Question Content Area

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

   YesNo

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