Problem - HD Labs 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 12,000 units of flat panel displays are estimated as follows:
Variable costs per unit:
Direct materials $140
Direct labor 30
Factory overhead 50
Selling and administrative expenses 25
Total $245
Fixed costs:
Factory overhead $960,000
Selling and administrative expenses 480,000
HD Lavs Inc. is currently considering establishing a selling price for flat panel displays. The president of HD Labs had 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.