Plasma Labs Inc. recently began production of a new product, flat panel displays, which required the investment of $3,000,000 in assets. The costs of producing and selling 20,000 units of flat panel displays are estimated as follows:
Variable Costs per unit:
Direct materials $150
Direct labor 30
Factory overhead 50
Selling and Admin. Expenses 20
Factory overhead $2,000,000
Selling and Admin. Expenses 1,000,000
Plasma Labs Inc. is currently considering establishing a selling price for flat panel display. The president of Plasma Labs has decided to use the cost plus approach to product pricing and has indicated that the displays must earn a 16% rate of return on invested assets.
1. Determine the amount of desired profit from the production and sald of flat panel displays.
2. Assuming that the total cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel displays.
3. Assuming that the product cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage (rounded to nearest two decimal places), and (c) the selling price of flat panel displays (rounded to the nearest dollar).
4. Assuming that the variable cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage, and (c) the selling price of flat panel display.
5. Comment on any additional considerations that could influence establishing the selling price for flat panel displays.
6. Assume that as of September 1, 2008, 13,000 units of flat panel displays have been produced and sold during the current year. Analysis of the domestic market indicates that 4,400 additional units are expected to be sold during the remainder of the year at the normal product price determined under the total cost concept. On September 3, Plasma Labs inc. received an offer from Vision Systems Inc. for 2,600 units of flat panel displays at $225 each. Vision Systems Inc. will market the units in Canada under its own brand name, and no selling administrative expenses associated with the sale will be incurred by Plasma Labs 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 capacity.
1. Prepare a differential analysis report of the proposed sale to Vision Systems Inc.
2. Based upon the differential analysis report in part (a), should the proposal be accepted?
Note: 2. (b) Markup percentage is 6%
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