Product Pricing using the Cost-Plus Approach Methods; Differential Analysis for Accepting Additional BusinessCrystal 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:Variable costs per unit: Fixed costs: Direct materials$120 Factory overhead$250,000Direct labor30 Selling and administrative expenses150,000Factory overhead50 Selling and administrative expenses35 Total variable cost per unit$235 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% return on invested assets.Required:Note: Round all markup percentages to two decimal places, if required. Round all costs per unit and selling prices per unit to the nearest whole dollar. 2. Assuming that the product cost method is used, determine the following:a. Product cost amount per unit $315 Xb. Markup percentagec. Selling price per unit3. (Appendix) Assuming that the total cost method is used, determine the following:315 ✔14.29 X %2,563.67 Xa. Total cost amount per unitb. Markup percentagec. Selling price per unit2,567.86 X4. (Appendix) Assuming that the variable cost method is used, determine the following:a. Variable cost amount per unit $235 ✔b. Markup percentagec. Selling price per unit714.29 X %957.45 X %2,483.67 X 6. Assume that as of August 1, 3,000 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 2,000 additionalunits are expected to be sold during the remainder of the year at the normal product price determined under the product cost method. On August 3, Crystal Displays Inc. received anoffer from Maple Leaf Visual Inc. for 800 units of flat panel displays at $225 each. Maple Leaf Visual Inc. will market the units in Canada under its own brand name, and no variableselling and administrative expenses associated with the sale will be incurred by Crystal Displays Inc. The additional business is not expected to affect the domestic sales of flat paneldisplays, and the additional units could be produced using existing factory, selling, and administrative capacity.a. Prepare a differential analysis of the proposed sale to Maple Leaf Visual Inc. If an amount is zero, enter "0".Differential AnalysisReject (Alt. 1) or Accept (Alt. 2) OrderAugust 3RejectAcceptOrderDifferentialEffectsOrder(Alternative 1) (Alternative 2) (Alternative 2)RevenuesCostsVariable manufacturing costsProfit (loss)7,500 X62,500 X$62,500 X7,500 X

Absorption costing is a costing mechanism where all the costs related to the production are assigned…

Answered: Product Pricing using the Cost-Plus…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Product Pricing using the Cost-Plus Approach Methods; Differential Analysis for Accepting Additional Business

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:

Variable costs per unit:		Fixed costs:
Direct materials	$120	Factory overhead	$250,000
Direct labor	30	Selling and administrative expenses	150,000
Factory overhead	50
Selling and administrative expenses	35
Total variable cost per unit	$235

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% return on invested assets.

Required:

Note: Round all markup percentages to two decimal places, if required. Round all costs per unit and selling prices per unit to the nearest whole dollar.

2. Assuming that the product cost method is used, determine the following:
a. Product cost amount per unit $
315 X
b. Markup percentage
c. Selling price per unit
3. (Appendix) Assuming that the total cost method is used, determine the following:
315 ✔
14.29 X %
2,563.67 X
a. Total cost amount per unit
b. Markup percentage
c. Selling price per unit
2,567.86 X
4. (Appendix) Assuming that the variable cost method is used, determine the following:
a. Variable cost amount per unit $
235 ✔
b. Markup percentage
c. Selling price per unit
714.29 X %
957.45 X %
2,483.67 X

Transcribed Image Text:6. Assume that as of August 1, 3,000 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 2,000 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost method. On August 3, Crystal Displays Inc. received an offer from Maple Leaf Visual Inc. for 800 units of flat panel displays at $225 each. Maple Leaf Visual Inc. will market the units in Canada under its own brand name, and no variable selling and administrative expenses associated with the sale will be incurred by Crystal Displays Inc. The additional business is not expected to affect the domestic sales of flat panel displays, and the additional units could be produced using existing factory, selling, and administrative capacity. a. Prepare a differential analysis of the proposed sale to Maple Leaf Visual Inc. If an amount is zero, enter "0". Differential Analysis Reject (Alt. 1) or Accept (Alt. 2) Order August 3 Reject Accept Order Differential Effects Order (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs Variable manufacturing costs Profit (loss) 7,500 X 62,500 X $ 62,500 X 7,500 X

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