Crystal Displays Inc. recently began production of a new product, flat panel dis
ID: 2509187 • 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:
1
Variable costs per unit:
2
Direct materials
$122.00
3
Direct labor
28.00
4
Factory overhead
48.00
5
Selling and administrative expenses
34.00
6
Total
$232.00
7
Fixed costs:
8
Factory overhead
$245,000.00
9
Selling and administrative expenses
148,000.00
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 13% rate of return on invested assets.
Labels and Amount Descriptions
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.
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.
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?
Yes
No
The company is indifferent since the result is the same regardless of which alternative is chosen.
1
Variable costs per unit:
2
Direct materials
$122.00
3
Direct labor
28.00
4
Factory overhead
48.00
5
Selling and administrative expenses
34.00
6
Total
$232.00
7
Fixed costs:
8
Factory overhead
$245,000.00
9
Selling and administrative expenses
148,000.00
Explanation / Answer
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1. Determine the amount of desired profit from the production and sale of flat panel displays. Desired Profit is 13% of invested assets Total Per Unit Hence, Desired Profit 1500000*13% 195000 195000/5000=39 2. Product Cost Concept Cost amount per unit Variable cost (only manufacturing) (122+28+48) 198 Per Unit Fixed Overhead 245000/5000 49 Per Unit Cost amount per unit 247 Mark up Percentage Profit per unit 39 Cost per unit 247 Mark up (Profit/Cost) 39/247 15.79 Selling Price Cost per unit 247 add: Profit per unit 39 Selling Price 286 3. Total Cost Concept Cost amount per unit Total Variable cost (122+28+48+34) 232 Per Unit Total Fixed Cost (245000+148000)/5000 78.6 Per Unit Cost amount per unit 310.6 Mark up Percentage Profit per unit 39 Cost per unit 310.6 Mark up (Profit/Cost) 39/310.6 12.56 Selling Price Cost per unit 310.6 add: Profit per unit 39 Selling Price 349.6 4. Variable Cost Concept Cost amount per unit Total Variable cost (122+28+48+34) 232 Per Unit Per Unit Cost amount per unit 232 Mark up Percentage Profit per unit 39 Cost per unit 232 Mark up (Profit/Cost) 39/232 16.81 Selling Price Cost per unit 232 add: Profit per unit 39 Selling Price 271 5. Additional Consideration 1. What price competition offering 2. Product Life Cycle 6. Decision Per Unit Units Total Incremental sales 220 1000 220000 Variable Product Cost (122+28+48)=198 1000 198000 Incremental Profit 22000 Since proposal is giving additional profit of 22000, should be acceptedRelated Questions
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