Marsh Industries had sales in 2013 of $7,616,000 and gross profit of $1,309,000.
ID: 2423018 • Letter: M
Question
Marsh Industries had sales in 2013 of $7,616,000 and gross profit of $1,309,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $9.52 to $10.00. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.60. The marketing department expects that the sales volume would increase by 178,500 units.
At the end of 2013, Marsh has 47,600 units of inventory on hand. If Plan A is accepted, the 2014 ending inventory should be equal to 5% of the 2014 sales. If Plan B is accepted, the ending inventory should be equal to 59,500 units. Each unit produced will cost $2.14 in direct labor, $1.49 in direct materials, and $1.43 in variable overhead. The fixed overhead for 2014 should be $2,255,050.
MARSH INDUSTRIES
Sales Budget
For the Year Ending December 31, 2014
Plan A
Plan B
MARSH INDUSTRIES
Production Budget
For the Year Ending December 31, 2014
Plan A
Plan B
Plan A
Plan B
Plan A
Plan B
Problem 21-3A (Part Level Submission)Explanation / Answer
Answer a. Marsh Industries Sales Budget For the Year Ending December 31, 2014 Plan A Plan B Expected Unit Sales 720,000 978,500 Unit Selling Price 10.00 9.02 Total Sales 7,200,000 8,826,070 Working Notes Sales in 2013 (A) 7,616,000 SP Per Unit (B) 9.52 Sales in Units (A/B) 800,000 Answer b. Marsh Industries Production Budget For the Year Ending December 31, 2014 Plan A Plan B Planned Sales in Units 720,000 978,500 Add: Inventory at end 36,000 59,500 Total needs 756,000 1,038,000 Less: Inventory at beginning 47,600 47,600 Units to be Produced 708,400 990,400 Answer c. Marsh Industries Calculation of Production Cost Per Unit For the Year Ending December 31, 2014 Plan A Plan B Variable Cost per Unit Direct Material 1.49 1.49 Direct Labor 2.14 2.14 Variable Ovrehead 1.43 1.43 Total Variable Overhead 5.06 5.06 Fixed Overhead per Unit = 2255050 / 708400 3.18 = 2255050 / 990400 2.28 Total Cost Per Unit 8.24 5.06 Answer d. Marsh Industries Calculation of Gross Profit For the Year Ending December 31, 2014 Plan A Plan B Sales 7,200,000 8,826,070 Less: Cost of Goods Sold = 720000 Units X $8.24 5,935,176 = 978500 Units X $5.06 4,951,210 Gross Profit 1,264,824 3,874,860 Plan B Should be Accepted
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