Marsh Industries had sales in 2013 of $7,168,000 and gross profit of $1,232,000.

ID: 2454779 • Letter: M

Question

Marsh Industries had sales in 2013 of $7,168,000 and gross profit of $1,232,000. Management is considering two alternative budget plans to increase its gross profit in 2014. Plan A would increase the selling price per unit from $8.96 to $9.41. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.56. The marketing department expects that the sales volume would increase by 168,000 units. At the end of 2013, Marsh has 44,800 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 56,000 units. Each unit produced will cost $2.02 in direct labor, $1.40 in direct materials, and $1.34 in variable overhead. The fixed overhead for 2014 should be $2,122,400. Prepare a sales budget for 2014 under each plan.

Explanation / Answer

Sales revenue in 2013 = 7,168,000

Price per unit =8.96

No. of units sold = Sales revenue/ price per unit

= 800,000

Under plan A units sales will decrease by 10%. Therefore, new units sale would be:

Unit sales under plan A = 800,000 x (1- 0.10)

= 720,000

Under plan B, unit sales would increase by 168,000.

Unit sales under plan B = 800,000 +168,000

= 968,000

Plan A

Plan B

Expected unit sales

720000

968000

Unit selling price

9.41

8.4

Total sales

6775200

8131200