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 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
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.
Differential Analysis
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 |
Final Question
6. B. Based on the differential analysis in part (A), should the proposal be accepted?
The company is indifferent since the result is the same regardless of which alternative is chosen.
No
Yes
Crystal Displays Inc. recently began production of a new product, flat panel displays, which requ...
Instructions 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: Variable costs per unit: 1 $118.00 Direct materials 2 Direct labor 32.00 3 Factory overhead 51.00 4 Selling and administrative expenses 36.00 5 $237.00 Total 6 7 Fixed costs: $250,000.00 Factory overhead 8 Selling and administrative expenses 155,000.00 9 Instructions Crystal Displays...
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 Labels and Amount Descriptions Labels Cash flows from operating activities Costs Vrable costs per unit Direct materials 122.00 28.00 48.00 4.00 232.00 3 Direct labor Factory overhead Selling and administrative expenses 6 Total Cash payments for merchandise Cash received from customers Fixed manufacturing...
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: Variable costs per unit: 1 $120.00 Direct materials 30,00 Direct labor Factory overhead 50,00 4 Selling and administrative expenses 35.00 5 $235.00 Total variable cost per unit 7 Fixed costs: Factory overhead $250,000.00 Selling and administrative expenses 150,000.00 9 Crystal Displays Inc. is...
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 29.00 4 Factory overhead 52.00 5 Selling and administrative expenses 35.00 6 Total variable cost per unit $238.00 7 Fixed costs: 8 Factory overhead $247,000.00 9 Selling and administrative expenses 149,000.00...
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