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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:

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  • 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.

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