Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for Accepting Additional Business Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,620,000 in assets. The costs of producing and selling 8,100 units of flat panel displays are estimated as follows: Variable costs per unit: Fixed costs: Direct materials $81 Factory overhead $324,000 Direct labor 18 Selling and administrative expenses 162,000 Factory overhead 36 Selling and administrative expenses 32 Total $167 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% rate of return on invested assets. Required: Note: Round all markup percentages to two decimal places. Round all costs per unit and selling prices per unit to the nearest whole dollar. 1. Determine the amount of desired profit from the production and sale of flat panel displays. $fill in the blank 67cf27f3c02d02c_1 2. Assuming that the product cost concept is used, determine the following: a. Cost amount per unit $fill in the blank 67cf27f3c02d02c_2 b. Markup Percentage fill in the blank 67cf27f3c02d02c_3 % c. Selling price per unit $fill in the blank 67cf27f3c02d02c_4 3. Appendix Assuming that the total cost concept is used, determine the following: a. Cost amount per unit $fill in the blank 67cf27f3c02d02c_5 b. Markup Percentage fill in the blank 67cf27f3c02d02c_6 % c. Selling price per unit $fill in the blank 67cf27f3c02d02c_7 4. Appendix Assuming that the variable cost concept is used, determine the following: a. Variable cost amount per unit $fill in the blank 67cf27f3c02d02c_8 b. Markup Percentage fill in the blank 67cf27f3c02d02c_9 % c. Selling price per unit $fill in the blank 67cf27f3c02d02c_10 5. The cost-plus approach price be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace, lead management to establish a short-run price more or less than the cost-plus approach price. 6. Assume that as of August 1, 4,500 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 3,600 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost concept. On August 3, Crystal Displays Inc. received an offer from Maple Leaf Visual Inc. for 1,400 units of flat panel displays at $202.50 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 zero "0". Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) August 3 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank 1f468208bf81fdf_1 $fill in the blank 1f468208bf81fdf_2 $fill in the blank 1f468208bf81fdf_3 Costs: Variable manufacturing costs fill in the blank 1f468208bf81fdf_4 fill in the blank 1f468208bf81fdf_5 fill in the blank 1f468208bf81fdf_6 Income (Loss) $fill in the blank 1f468208bf81fdf_7 $fill in the blank 1f468208bf81fdf_8 $fill in the blank 1f468208bf81fdf_9 b. Based on the differential analysis in part (a), should the proposal be accepted?

Product Pricing using the Cost-Plus Approach Concepts; Differential Analysis for Accepting Additional Business Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,620,000 in assets. The costs of producing and selling 8,100 units of flat panel displays are estimated as follows: Variable costs per unit: Fixed costs: Direct materials $81 Factory overhead $324,000 Direct labor 18 Selling and administrative expenses 162,000 Factory overhead 36 Selling and administrative expenses 32 Total $167 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% rate of return on invested assets. Required: Note: Round all markup percentages to two decimal places. Round all costs per unit and selling prices per unit to the nearest whole dollar. 1. Determine the amount of desired profit from the production and sale of flat panel displays. $fill in the blank 67cf27f3c02d02c_1 2. Assuming that the product cost concept is used, determine the following: a. Cost amount per unit $fill in the blank 67cf27f3c02d02c_2 b. Markup Percentage fill in the blank 67cf27f3c02d02c_3 % c. Selling price per unit $fill in the blank 67cf27f3c02d02c_4 3. Appendix Assuming that the total cost concept is used, determine the following: a. Cost amount per unit $fill in the blank 67cf27f3c02d02c_5 b. Markup Percentage fill in the blank 67cf27f3c02d02c_6 % c. Selling price per unit $fill in the blank 67cf27f3c02d02c_7 4. Appendix Assuming that the variable cost concept is used, determine the following: a. Variable cost amount per unit $fill in the blank 67cf27f3c02d02c_8 b. Markup Percentage fill in the blank 67cf27f3c02d02c_9 % c. Selling price per unit $fill in the blank 67cf27f3c02d02c_10 5. The cost-plus approach price be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace, lead management to establish a short-run price more or less than the cost-plus approach price. 6. Assume that as of August 1, 4,500 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 3,600 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost concept. On August 3, Crystal Displays Inc. received an offer from Maple Leaf Visual Inc. for 1,400 units of flat panel displays at $202.50 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 zero "0". Differential Analysis Reject Order (Alt. 1) or Accept Order (Alt. 2) August 3 Reject Order (Alternative 1) Accept Order (Alternative 2) Differential Effect on Income (Alternative 2) Revenues $fill in the blank 1f468208bf81fdf_1 $fill in the blank 1f468208bf81fdf_2 $fill in the blank 1f468208bf81fdf_3 Costs: Variable manufacturing costs fill in the blank 1f468208bf81fdf_4 fill in the blank 1f468208bf81fdf_5 fill in the blank 1f468208bf81fdf_6 Income (Loss) $fill in the blank 1f468208bf81fdf_7 $fill in the blank 1f468208bf81fdf_8 $fill in the blank 1f468208bf81fdf_9 b. Based on the differential analysis in part (a), should the proposal be accepted?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter11: Differential Analysis And Product Pricing

Section: Chapter Questions

Problem 6PA: Product pricing using the cost-plus approach methods; differential analysis for accepting additional...

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

Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,620,000 in assets. The costs of producing and selling 8,100 units of flat panel displays are estimated as follows:

Variable costs per unit:		Fixed costs:
Direct materials	$81	Factory overhead	$324,000
Direct labor	18	Selling and administrative expenses	162,000
Factory overhead	36
Selling and administrative expenses	32
Total	$167

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% rate of return on invested assets.

Required:

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

1. Determine the amount of desired profit from the production and sale of flat panel displays.
$fill in the blank 67cf27f3c02d02c_1

2. Assuming that the product cost concept is used, determine the following:

a. Cost amount per unit	$fill in the blank 67cf27f3c02d02c_2
b. Markup Percentage	fill in the blank 67cf27f3c02d02c_3	%
c. Selling price per unit	$fill in the blank 67cf27f3c02d02c_4

3. Appendix Assuming that the total cost concept is used, determine the following:

a. Cost amount per unit	$fill in the blank 67cf27f3c02d02c_5
b. Markup Percentage	fill in the blank 67cf27f3c02d02c_6	%
c. Selling price per unit	$fill in the blank 67cf27f3c02d02c_7

4. Appendix Assuming that the variable cost concept is used, determine the following:

a. Variable cost amount per unit	$fill in the blank 67cf27f3c02d02c_8
b. Markup Percentage	fill in the blank 67cf27f3c02d02c_9	%
c. Selling price per unit	$fill in the blank 67cf27f3c02d02c_10

5. The cost-plus approach price be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace, lead management to establish a short-run price more or less than the cost-plus approach price.

6. Assume that as of August 1, 4,500 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 3,600 additional units are expected to be sold during the remainder of the year at the normal product price determined under the product cost concept. On August 3, Crystal Displays Inc. received an offer from Maple Leaf Visual Inc. for 1,400 units of flat panel displays at $202.50 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 zero "0".

Differential Analysis
Reject Order (Alt. 1) or Accept Order (Alt. 2)
August 3
	Reject Order (Alternative 1)	Accept Order (Alternative 2)	Differential Effect on Income (Alternative 2)
Revenues	$fill in the blank 1f468208bf81fdf_1	$fill in the blank 1f468208bf81fdf_2	$fill in the blank 1f468208bf81fdf_3
Costs:
Variable manufacturing costs	fill in the blank 1f468208bf81fdf_4	fill in the blank 1f468208bf81fdf_5	fill in the blank 1f468208bf81fdf_6
Income (Loss)	$fill in the blank 1f468208bf81fdf_7	$fill in the blank 1f468208bf81fdf_8	$fill in the blank 1f468208bf81fdf_9

b. Based on the differential analysis in part (a), should the proposal be accepted?

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