Katie Enterprises reports the year-end information from 20X8 as follows: Sales (

Question

Katie Enterprises reports the year-end information from 20X8 as follows: Sales (70,000 units) $560,000; Cost of goods sold 210,000; Gross margin 350,000; Operating expenses 200,000; Operating income $150,000.  Katie is developing the 20X2 budget.  In 20X2, the company would like to increase selling prices by 4%, and as a result expects a decrease in sales volume of 10%.  All other operating expenses are expected to remain constant.  Assume that COGS is a variable cost and that operating expenses are a fixed cost.  What is budgeted sales for 20X2?

Explanation / Answer

At present, selling price per unit = 560000/70000 = $8

New selling price = 8 x 1.04 = $8.32

New sales volume = 70000 x 0.9 = $63000

Budgeted sales = 8.32 x 63000 = $524160

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