Diamond Visual Entertainment 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: Variable Costs: Variable Cost Amount: Fixed Costs: Fixed Cost Amount: Direct materials $120 Factory overhead $240,000 Direct labor 35 Selling and admin expenses 150,000 Variable overhead 52 Total Fixed costs 390,000 Selling and admin expenses 38 Total variable costs 245 Diamond Visual Entertainment Inc. is currently considering establishing a selling price for flat panel displays. The president of Diamond Visual Entertainment has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 17% return on invested assets. Problem 3 Instructions a. Determine the amount of desired profit from the production and sale of flat panel displays. b. Assuming that the product cost method is used, determine: i. the cost amount per unit, ii. the markup percentage, and iii. the selling price of flat panel displays. c. Assuming that the total cost method is used, determine: i. the cost amount per unit, ii. the markup percentage (rounded to two decimal places), and iii. the selling price of flat panel displays. (Round markup to nearest whole dollar.) d. Assuming that the variable cost method is used, determine: i. the cost amount per unit, ii. the markup percentage (rounded to two decimal places), and iii. the selling price of flat panel displays. (Round markup to nearest whole dollar.) e. Comment on any additional considerations that could influence establishing the selling price for flat panel displays.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter13: The Balanced Scorecard: Strategic-based Control

Section: Chapter Questions

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Diamond Visual Entertainment 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:

Variable Costs:	Variable Cost Amount:	Fixed Costs:	Fixed Cost Amount:
Direct materials	$120	Factory overhead	$240,000
Direct labor	35	Selling and admin expenses	150,000
Variable overhead	52	Total Fixed costs	390,000
Selling and admin expenses	38
Total variable costs	245

Diamond Visual Entertainment Inc. is currently considering establishing a selling price for flat panel displays. The president of Diamond Visual Entertainment has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 17% return on invested assets.

Problem 3 Instructions

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

b. Assuming that the product cost method is used, determine:

i. the cost amount per unit,

ii. the markup percentage, and

iii. the selling price of flat panel displays.

c. Assuming that the total cost method is used, determine:

i. the cost amount per unit,

ii. the markup percentage (rounded to two decimal places), and

iii. the selling price of flat panel displays. (Round markup to nearest whole dollar.)

d. Assuming that the variable cost method is used, determine:

i. the cost amount per unit,

ii. the markup percentage (rounded to two decimal places), and

iii. the selling price of flat panel displays. (Round markup to nearest whole dollar.)

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

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