Crystal Displays Inc. recently began production of a new product, flat panel dis

Question

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
$120.00
3
Direct labor
32.00
4
Factory overhead
48.00
5
Selling and administrative expenses
36.00
6
Total variable cost per unit
$236.00
7
Fixed costs:

8
Factory overhead
$254,000.00
9
Selling and administrative expenses
146,000.00

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 20% return on invested assets.

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 subtracte

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

2. Assuming that the product cost method is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel displays. Round your markup percentage and selling price to two decimal places.

3. (Appendix) Assuming that the total cost method is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel displays. Round your markup percentage and selling price to two decimal places.

4. (Appendix) Assuming that the variable cost method is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel displays. Round your markup percentage and selling price to two decimal places.

5. Comment on any additional considerations that could influence establishing the selling price for flat panel displays.

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

d 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?
*Round your markup percentage and selling price to two decimal places.

a)Cost amount per unit $ b)Markup percentage % c)Selling price $

Explanation / Answer

Solution 1:

Investment in Asset = $1,300,000

Amount of desired profit = $1,300,000 * 20% = $260,000

Solution 2a:

Solution 2b:

Required sales to cover product cost, selling cost and desired profit = 5000*$250.80 + 5000*$36 + $146,000 + $260,000 = $1,840,000

Product cost = 5000*$250.80 =$1,254,000

Markup percentage on cost = ($1,840,000 - $1,254,000) / $1,254,000 = 46.73%

Solution 2c:

Desired selling price = $1,840,000 / 5000 = $368 per unit

Solution 3a:

Solution 3b:

Required sales to cover total cost and desired profit = 5000*$316 + $260,000 = $1,840,000

Total cost = 5000*$316 =$1,580,000

Markup percentage on cost = ($1,840,000 - $1,580,000) / $1,580,000 = 16.46%

Solution 3c:

Desired selling price = $1,840,000 / 5000 = $368 per unit

Solution 4a:

Solution 4b:

Required sales to cover variable cost, fixed cost and desired profit = 5000*$236 + $254,000 + $146,000 + $260,000 = $1,840,000

Variable cost = 5000*$236 =$1,180,000

Markup percentage on cost = ($1,840,000 - $1,180,000) / $1,180,000 = 55.93%

Solution 4c:

Desired selling price = $1,840,000 / 5000 = $368 per unit

Note: I have answered first 4 parts of the question as per chegg policy, kindly post separate question for answer of remaining parts.

Compuation of total production cost and product cost per unit - Crystal displays Inc. Particulars Amount Direct material (5000*$120) $600,000.00 Direct Labor (5000*$32) $160,000.00 Varaible Factory overhead (5000*$48) $240,000.00 Fixed factory overhead $254,000.00 Total Production Cost $1,254,000.00 Nos of units produced 5000.00 Product cost per unit $250.80

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