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:

Plasma Labs Inc. is currently considering establishing a selling price for flat panel displays.
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.

Instructions
1. Determine the amount of desired profit from the production and sale 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 two decimal places), and
(c) The selling price of flat panel displays (rounded to nearest whole 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 displays.
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 $255 each. Vision Systems Inc. will market the units in Canada under its own brand name, and no selling and 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.
a. Prepare a differential analysis report of the proposed sale to Vision Systems Inc.
b. Based upon the differential analysis report in part (a), should the proposal beaccepted?

Transcribed Image Text:

Variable costs per unit: Fixed costs: Direct materials Direct labor Factory overhead Selling and administrative expenses $150 $2,000,000 30 Selling and administrative expenses 1000,000 Factory overhead 50 20 $250 Total