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

Digital Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $6,000,000 in assets. The costs of producing and selling 20,000 units of flat panel displays are estimated as follows:

Variable costs per unit:

Line Item Description	Amount
Direct materials	$120
Direct labor	30
Factory overhead	50
Selling and administrative expenses	35
Total variable cost per unit	$235

Fixed costs:

Line Item Description	Amount
Factory overhead	$1,000,000
Selling and administrative expenses	400,000

Digital Displays Inc. is currently considering establishing a selling price for flat panel displays. The president of Digital Displays has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 15% return on invested assets.

Required:

Question Content Area

Note: Round all markup percentages to two decimal places, if required. 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. $ 2. Assuming that the product cost method is used, determine the following: 3. (Appendix) Assuming that the total cost method is used, determine the following: 4. (Appendix) Assuming that the variable cost method is used, determine the following