Question

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: 1 Direct materials $120.00 Direct labor 50.00 • Factory overhead 50.00 Selling and administrative expenses 3500 Total variable cost per unit 5235.00 11 AM V 2019

Answer 1

Answer with working is given below

1. $225,000 Amount of Desired Profit Per Unit $45 Investment $1,500,000 Return on Invested Assets ROI expected Units ROI per unit $225,000 $5,000 2. Product Cost method Cost per Unit Mark up Percentage Selling price $250 18.0% $295 $120 Product Cost per unit Direct Material Direct Labor Variable Factory Overhead Fixed Manufacturing Overhead Total Product Cost Mark up per unit Total Selling price $295 3. Total Cost method Cost per Unit Mark up Percentage Selling price 14.3% $360 Total Cost per unit Direct Material Direct Labor Variable Factory Overhead Variable Selling and Admin Expense Fixed Manufacturing Overhead Fixed S & A Expense Total Cost Mark up per unit Total Selling price $315 $45 $360 4. $235 Variable Cost method Cost per Unit Mark up Percentage Selling price 19.1% $280 $120 Variable Cost per unit Direct Material Direct Labor Variable Factory Overhead Variable Selling and Admin Expense Total Variable Cost Mark up per unit Total Selling price $280 5. Additional considerations for establishing the selling price of the panel displays - Brand image in market - Competitor pricing - Marketing Strategy - Demand for product 6. Differential Analysis Reject Order Accept Order Differential Effect on Income $180,000 $180,000 Revenues Costs Variable manufacturing cost Income/(Loss) $160,000 $20,000 $160,000 $20,000 Since there is incremental contribution the offer should be accepted Note: Only variable cost actual incurred will be relevant cost for analysis Fixed cost is irrelevant for evaluation of special order