Accounting for Decision Making and Control 7th Edition by Jerold Zimmerman

Exercise 29

Oppenheimer Visuals
Oppenheimer Visuals manufactures state-of-the-art flat-panel plasma display screens that large com­puter companies like Dell and Gateway assemble into flat-panel monitors. Oppenheimer produces just the display panels, not any of the electronics, cases, or stands needed to make a complete unit. It is about to launch a new product employing TN polarized glass with a unique microscopic groove pattern. Two different technologies exist that can produce the unique groove pattern. One technology has a fixed cost of $34,000 per day and a variable cost of $200 per panel. The second technology has a fixed cost of $16,000 per day and a variable cost of $400 per panel. The fixed costs of the two tech­nologies consist entirely of three-year leases for equipment to produce the panels. Both technologies are equally reliable and produce panels of equal quality. The only difference between the two tech­nologies is their cost structures.
Because Oppenheimer holds a patent on the new YN polarized glass flat-panel displays, it has some market power and expects to sell the new display panels to computer companies based on the following demand schedule: In other words, if Oppenheimer sets the price per panel at $760, it expects to sell 60 panels per day. If it sets the price at $560, it expects to sell 110 panels per day.
Required:
a. To maximize firm value, should Oppenheimer Visuals choose technology 1 or technology 2 to manufacture the new flat-panel display?
b. Given the technology choice you made in part (a), what price should Oppenheimer charge for the new flat-panel display?
c. Using Oppenheimer Visuals as an example, explain what is meant by the often used expression, "All costs are variable in the long run."