FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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.
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Transcribed Image Text: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.
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
Аcсept
Differential
Order
Order
Effect on Income
(Alternative 1) (Alternative 2)
(Alternative 2)
Revenues
Costs:
Variable manufacturing costs
Income (Loss)
$
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Transcribed Image Text: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 Аcсept Differential Order Order Effect on Income (Alternative 1) (Alternative 2) (Alternative 2) Revenues Costs: Variable manufacturing costs Income (Loss) $
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