Hill Industries had sales in 2016 of $7,280,000 and gross profit of $1,149,000. Management is considering two alternative budget plans to increase its gross profit in 2017.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2016 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 112,000 units.
At the end of 2016, Hill has 44,000 units of inventory on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 5% of the 2017 sales. If Plan B is accepted, the ending inventory should be equal to 68,000 units. Each unit produced will cost $1.80 in direct labor, $1.40 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2017 should be $1,972,000.
A-Prepare a sales budget for 2017 under each plan.
Expected unit sales
Unit selling price
B-Prepare a production budget for 2017 under each plan.
C-Compute the production cost per unit under each plan.
D-Compute the gross profit under each plan