Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for

Question

Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for Accepting Additional Business

Display Labs Inc. is currently considering establishing a selling price for flat panel displays. The president of Display Labs has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 20% rate of return on invested assets.

Required:

Note: Round all markup percentages to two decimal places.

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 the following:

Explanation / Answer

Hi,

Please ignore my previous post. There was a problem with second part. Corrected answers are as follows:

Part 1:

Amount of desired profit = .20 * 1800000 = 360000

Part 2:

Product Cost Amount Per Unit = 90 + 20 + 40 = 150 + 360000/9000 = 190 per unit.

Markup % = (360000 + 180000 + 35*9000)/(190*9000)*100 = 50%.

Selling Price = 150*(1+.50) = 225 per unit.

Thanks.

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