Crystal Displays Inc. recently began production of a newproduct, flat panel displays, which required the investment of$1,500,000 in assets. The costs of producing and selling 5,000units of flat panel displays are estimated as follows:
1 | Variable costs per unit: | |
2 | Direct materials | $122.00 |
3 | Direct labor | 29.00 |
4 | Factory overhead | 52.00 |
5 | Selling and administrative expenses | 35.00 |
6 | Total variable cost per unit | $238.00 |
7 | Fixed costs: | |
8 | Factory overhead | $247,000.00 |
9 | Selling and administrative expenses | 149,000.00 |
Crystal Displays Inc. is currently considering establishing aselling price for flat panel displays. The president of CrystalDisplays has decided to use the cost-plus approach to productpricing and has indicated that the displays must earn a 10% returnon invested assets.
| Required: |
| 1. | Determine the amount of desired profit from the production andsale 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) theselling price of flat panel displays.* |
| 3. | (Appendix) Assuming that the total cost method is used,determine (a) the cost amount per unit, (b) the markup percentageand (c) the selling price of flat panel displays.* |
| 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.* |
| 5. | Comment on any additional considerations that could influenceestablishing the selling price for flat panel displays. |
| 6. | Assume that as of August 1, 3,000 units of flat panel displayshave been produced and sold during the current year. Analysis ofthe domestic market indicates that 2,000 additional units areexpected to be sold during the remainder of the year at the normalproduct price determined under the product cost method. On August3, Crystal Displays Inc. received an offer from Maple Leaf VisualInc. for 600 units of flat panel displays at $224 each. Maple LeafVisual Inc. will market the units in Canada under its own brandname, and no variable selling and administrative expensesassociated with the sale will be incurred by Crystal Displays Inc.The additional business is not expected to affect the domesticsales of flat panel displays, and the additional units could beproduced using existing factory, selling, and administrativecapacity.| a. | Prepare a differential analysis of the proposed sale to MapleLeaf Visual Inc. Refer to the lists of Labels and AmountDescriptions for the exact wording of the answer choices for textentries. For those boxes in which you must enter subtracted ornegative numbers use a minus sign. If there is no amount or anamount is zero, enter “0”. A colon (:) will automatically appear ifrequired. | | b. | Based on the differential analysis in part (a), should theproposal be accepted? | | *Round your markup percentage and selling price to two decimalplaces. |
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| Labels | |
| Cash flows from operating activities | |
| Costs | |
| Amount Descriptions | |
| Cash payments for merchandise | |
| Cash received from customers | |
| Fixed manufacturing costs | |
| Income (loss) | |
| Revenues | |
| Variable manufacturing costs |
1. Determine the amount of desired profit from the productionand 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) theselling price of flat panel displays. Round your markup percentageand selling price to two decimal places.
| Cost amount per unit | |
| Markup percentage | % |
| Selling price | |
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 markuppercentage and selling price to two decimal places.
6a. Prepare a differential analysis of the proposed sale toMaple Leaf Visual Inc. Refer to the lists of Labels and AmountDescriptions for the exact wording of the answer choices for textentries. For those boxes in which you must enter subtracted ornegative numbers use a minus sign. If there is no amount or anamount is zero, enter “0”. A colon (:) will automatically appear ifrequired.
Differential Analysis |
Reject (Alternative 1) or Accept (Alternative 2) Order |
August 3 |
1 | | Reject Order | Accept Order | Differential Effect on Income |
2 | | (Alternative 1) | (Alternative 2) | (Alternative 2) |
3 | | | | |
4 | | | | |
5 | | | | |
6 | | | | |
