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.