Crystal Displays Inc. recently began production of a new product, flat panel dis
ID: 2445973 • Letter: C
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:
Question not attempted.
1
Variable costs per unit:
2
Direct materials
$120.00
3
Direct labor
30.00
4
Factory overhead
50.00
5
Selling and administrative expenses
35.00
6
Total
$235.00
7
Fixed costs:
8
Factory overhead
$250,000.00
9
Selling and administrative expenses
150,000.00
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 15% rate of return on invested assets.
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.
1
Variable costs per unit:
2
Direct materials
$120.00
3
Direct labor
30.00
4
Factory overhead
50.00
5
Selling and administrative expenses
35.00
6
Total
$235.00
7
Fixed costs:
8
Factory overhead
$250,000.00
9
Selling and administrative expenses
150,000.00
Explanation / Answer
Sales Units 5000 Variable Cost (235 x 5000) $ 1,175,000.00 Fixed Cost: Factory Overhead $ 250,000.00 Selling and Administrative expenses $ 150,000.00 Total Cost $ 1,575,000.00 Income (15% of 1,500,000) $ 225,000.00 Sales Volume $ 1,800,000.00 Unit price $ 360.00 Differential cost analysis assuming no idle capacity Accept Offer Reject offer Differential cost Normal Sales units 5000 4200 -800 Special Offer 0 800 800 Total Sales units 5000 5000 0 Normal Sales @360 per unit $ 1,800,000.00 $ 1,512,000.00 $ (288,000.00) Special Sales @225 $ - $ 180,000.00 $ 180,000.00 Total Sales $ 1,800,000.00 $ 1,692,000.00 $ (108,000.00) Variable cost @235 per unit $ 1,175,000.00 $ 1,175,000.00 $ - Fixed cost $ 400,000.00 $ 400,000.00 $ - Total Cost $ 1,575,000.00 $ 1,575,000.00 $ - Income/Loss $ 225,000.00 $ 117,000.00 $ (108,000.00) Differential cost analysis assuming that company have enough idle capacity Accept Offer Reject offer Differential cost Normal Sales units 5000 5000 0 Special Offer 0 800 800 Total Sales units 5000 5800 800 Normal Sales @360 per unit $ 1,800,000.00 $ 1,800,000.00 $ - Special Sales @225 $ - $ 180,000.00 $ 180,000.00 Total Sales $ 1,800,000.00 $ 1,980,000.00 $ 180,000.00 Variable cost @235 per unit $ 1,175,000.00 $ 1,363,000.00 $ 188,000.00 Fixed cost $ 1,800,000.00 $ 1,800,000.00 $ - Total Cost $ 2,975,000.00 $ 3,163,000.00 $ 188,000.00 Income/Loss $ (1,175,000.00) $ (1,183,000.00) $ (8,000.00) in both the cases ordershould not be accepted.
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