Product Pricing Using the total cost Concept; Differential Analysis Report for Accepting Additional Business

Twilight Lumina Company recently began production of a new product, the halogen light, which required an investment of $$2,160,000$ in assets. The

costs of producing and selling $10,800$ halogen lights are estimated as follows:

Fixed costs:

Factory overhead $$432,000$

Selling and admin. exp. $216,000$

Twilight Lumina Company is currently considering establishing a selling price for the halogen light. The president of Twilight Lumina Company has

decided to use the cost$-$plus approach to product pricing and has indicated that the halogen light must earn a $20\%$ rate of return on invested assets.Twilight Lumina Company is currently considering establishing a selling price for the halogen light. The president of Twilight Lumina Company has

decided to use the cost$-$plus approach to product pricing and has indicated that the halogen light must earn a $20\%$ rate of return on invested assets.

Required:

Note: Round all percentages to two decimal places then use in subsequent computations, if applicable. Round all dollar amounts to the

nearest dollar.

Determine the amount of desired profit from the production and sale of the halogen light.

$

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

a$.$ Cost amount per unit

b$.$ Markup percentage

c$.$ Selling price of the halogen light

Comment on any additional considerations that could influence establishing the selling price for the halogen light.Assume that $6,000$ units of the halogen light have been produced and sold during the current year. Analysis of the domestic market indicates that

$4,800$ additional units of the halogen light are expected to be sold during the remainder of the year at the normal product price determined under the

total cost concept. Twilight Lumina Company received an offer from Contech Inc. for $1,800$ units of the halogen light at $$270\mathrm{.}00$ each. Contech Inc. will

market the units in Southeast Asia under its own brand name, and no selling and administrative expenses associated with the sale will be incurred by

Twilight Lumina Company. The additional business is not expected to affect the domestic sales of the halogen light, and the additional units could be

produced using existing capacity.

a$.$ Prepare a differential analysis report of the proposed sale to Contech Inc.

Twilight Lumina Company

Proposal to Sell to Contech Inc.

Differential Analysis Report

Differential cost of accepting offer: