Marsh Industries had sales in 2013 of $7,680,000 and gross profit of $1,320,000.

Question

Marsh Industries had sales in 2013 of $7,680,000 and gross profit of $1,320,000. Management is considering two alternative budget plans to increase its gross profit in 2014. Plan A would increase the selling price per unit from $9.60 to $10.08. 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 180,000 units. At the end of 2013, Marsh has 48,000 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 60,000 units. Each unit produced will cost $2.16 in direct labor, $1.50 in direct materials, and $1.44 in variable overhead. The fixed overhead for 2014 should be $2,274,000. Collapse question part (a) Prepare a sales budget for 2014 under each plan. MARSH INDUSTRIES Sales Budget For the Year Ending December 31, 2014 Plan A Plan B Expected unit sales Unit selling price $ $ Total sales $ $

Explanation / Answer

From the given information:

              Sales in 2013 = $ 7,680,000, & Selling price = $ 9.60

              Sales volume in 2013 = 7,680,000/ 9.60 = 800,000 units.

Under Plan A: Sales Budget for year ending 2014:

             Expected Sales Volume = 800,000- 10% = 720,000 units

             Selling price = $ 10.08

             Total Sales = 720,000 * 10.08 = $ 7,257,600.

Under Plan B, Sales budget for year ending 2014:

             Expected Sales volume = 800,000+ 180,000 = 980,000 units

             Selling price = $ 9.60 - 1.60 = $9.00

             Total sales = 980,000 * 9 = $ 8,820,000 .

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