Marsh Industries had sales in 2013 of $6,464,000 and gross profit of $1,111,000.
ID: 2424557 • Letter: M
Question
Marsh Industries had sales in 2013 of $6,464,000 and gross profit of $1,111,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $8.08 to $8.48. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.51. The marketing department expects that the sales volume would increase by 151,500 units.
At the end of 2013, Marsh has 40,400 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 50,500 units. Each unit produced will cost $1.82 in direct labor, $1.26 in direct materials, and $1.21 in variable overhead. The fixed overhead for 2014 should be $1,913,950.
(a)
MARSH INDUSTRIES
Sales Budget
For the Year Ending December 31, 2014
Plan A
Plan B
Marsh Industries had sales in 2013 of $6,464,000 and gross profit of $1,111,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $8.08 to $8.48. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.51. The marketing department expects that the sales volume would increase by 151,500 units.
At the end of 2013, Marsh has 40,400 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 50,500 units. Each unit produced will cost $1.82 in direct labor, $1.26 in direct materials, and $1.21 in variable overhead. The fixed overhead for 2014 should be $1,913,950.
Explanation / Answer
Solution :
Current year sales(2013) = $ 64,64,000
Selling price per unit = $8.08
Unit sales = $ 64,64,000/ $ 8.08 = $8,00,000 (2013)
Plan A:
In year 2014, selling price is $ 8.48 and sales units decreased to 10% i.e., 8,00,000 to 7,20,000 units
Expected Sales = 7,20,000*$8.48 = $ 61,05,600
Plan B:
In year 2014, selling price reduced by $0.51 and sales units increased by 1,51,500 units
Expected Sales = (8,00,000+1,51,500) * ($ 8.08 - $ 0.51) = $ 72,02,855
Above calculation is shown in the below table:
Plan A Plan B
Expected Unit Sales 7,20,000 9,51,500
Unit Selling Price $ 8.48 $ 7.57
Total Sales $ 61,05,600 $ 72,02,855
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