Question

In: Accounting

Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the...

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.

Required:

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

Assuming that the product cost method is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel displays.*

(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.*

(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.*

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

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.

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.
b.	Based on the differential analysis in part (a), should the proposal be accepted?
	*Round your markup percentage and selling price to two decimal places

Solutions

Expert Solution

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 labour	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

indicated that the displays must earn a 20% return on invested assets.

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

desired profit = invested assets * 20% = 1300000 * 20% = $260000

2. Assuming that the product cost method is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel displays.

(a) the cost amount per unit = variable product cost per units + ( fixed product cost total / number of units )

variable product cost per units = Direct material + direct labor + factory overhead = 120 + 32 + 48 = 200

fixed product cost total = Factory overhead = 254000

umber of units = 5000

Fixed product cost per units = 254000 / 5000 = 50.8

the cost amount per unit = 200 + 50.8 = $250.8

(b) the markup percentage = ( Desired profit + period cost ) / total product cost

where,

Desired profit = 260000

period cost = ( 36 * 5000 ) + 146000 = 326000

total product cost = 250.8 * 5000 = 1254000

the mark-up percentage = ( 260000 + 326000 ) / 1254000

the mark-up percentage = 586000 / 1254000

the markup percentage = 0.4673 or 46.73%

(c) the selling price of flat panel displays. = Product cost per units * ( 1 + mark-up percentage )

the selling price of flat panel displays. = 250.8 * ( 1 + 46.73% )

the selling price of flat panel displays. = 250.8 * 1.4673

the selling price of flat panel displays. = $368

3. 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

(a) the cost amount per unit = variable total cost per units + ( fixed total cost / number of units )

variable total cost per units = Direct material + direct labor + factory overhead + Selling and administrative expenses = 120 + 32 + 48 + 36 = 236

fixed cost total = Factory overhead + Selling and administrative expenses = 254000 + 146000 = 400000

umber of units = 5000

Fixed product cost per units = 400000 / 5000 = 80

the cost amount per unit = 236 + 80 = $316

(b) the markup percentage = Desired profit / total cost

where,

Desired profit = 260000

Total cost = 316 * 5000 = 1580000

the mark-up percentage = 260000 / 1580000

the markup percentage = 0.1646 or 16.46%

(c) the selling price of flat panel displays. = Total cost per units * ( 1 + mark-up percentage )

the selling price of flat panel displays. = 316 * ( 1 + 16.46% )

the selling price of flat panel displays. = 316 * 1.1646

the selling price of flat panel displays. = $368

4. 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

(a) the cost amount per unit = variable total cost per units

Variable total cost per units = Direct material + direct labor + factory overhead + Selling and administrative expenses = 120 + 32 + 48 + 36 = 236

the cost amount per unit = $236

(b) the markup percentage = ( Desired profit + fixed cost )/ total variable cost cost

where,

Desired profit = 260000

Fixed cost = 254000 + 146000 = 400000

total variable cost cost = 236 * 5000 = 1180000

the mark-up percentage = ( 260000 + 400000 ) / 1180000

the markup percentage = 0.5593 or 55.93%

(c) the selling price of flat panel displays. = Total cost per units * ( 1 + mark-up percentage )

the selling price of flat panel displays. = 236 * ( 1 + 55.93% )

the selling price of flat panel displays. = 236 * 1.5593

the selling price of flat panel displays. = $368

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

Ø Market consideration

Ø Demand

Ø The price of competing products

Ø General economic conditions of the market places

6. .

a. Prepare a differential analysis of the proposed sale to Maple Leaf Visual Inc.

	Reject special order	Accept special order	Differential
Sales Revenue	5000 * 368 =1840000	1840000 + ( 900 * 227 ) =2044300	2044300
Variable cost	5000 * 236 =1180000	118000 + ( 200 * 900 ) =1360000	180000
C. Margin	660000	684300	24300
Fixed cost	400000	400000	0
Profit	260000	284300	24300

Ø If we accept the profit will increase by $24300

B . So, proposal should accept

ekkarill92 answered 1 year ago

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