In: Accounting
Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,300,000 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 |
$120.00 |
3 |
Direct labor |
32.00 |
4 |
Factory overhead |
48.00 |
5 |
Selling and administrative expenses |
36.00 |
6 |
Total variable cost per unit |
$236.00 |
7 |
Fixed costs: |
|
8 |
Factory overhead |
$254,000.00 |
9 |
Selling and administrative expenses |
146,000.00 |
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 20% return on invested assets.
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 900 units of flat panel displays at $227 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.
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Answer-a
Working:
Answer-b