Question

Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,500,000 in assets. The costs of producing and selling 5,000 units of flat panel displays are estimated as follows:
Variable costs per unit:
Fixed costs:

Direct materials $120
Factory overhead $250,000
Direct labor 30
Selling and administrative expenses 150,000
Factory overhead 50
Selling and administrative expenses 35
Total variable cost per unit $235

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 15% return on invested assets.

Required:
Determine the amount of desired profit from the production and sale of flat panel displays.

Answer 1

Answer:

Crystal Displays Inc.

The amount of desired profit from the production and sale of the flat panel displays is:

= $225,000

Explanation:

a) Data and Calculations:

Investment in assets = $1,500,000

Production and sales units = 5,000

Cost of production and sales:

Variable costs per unit:

Direct materials                    $120  

Direct labor                              30

Factory overhead                    50

Selling and

administrative expenses        35

Total variable cost per unit $235

Fixed costs:

Factory overhead                             $250,000

Selling and administrative expenses 150,000

Total fixed costs                              $400,000

Total production costs:

Variable production costs =  $1,000,000 (5,000 * $200)

Fixed factory overhead             250,000

Total production costs          $1,250,000

Total selling and administrative expenses:

Variable selling and admin.     $175,000

Fixed selling and admin.            150,000

Total selling and admin. exp. $325,000

Total costs of production and sales = $1,575,000

Target return on invested assets =         225,000 ($1,500,000 * 15%)

Total expected sales revenue =          $1,800,000

Price per unit = $360 ($1,800,000/5,000)