Marsh Industries had sales in 2013 of $7,616,000 and gross profit of $1,309,000.
ID: 2461021 • 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.
Prepare a sales budget for 2014 under each plan.
Explanation / Answer
Sales Budget A B Units sold in 2013 7616000/9.52 800,000 800,000 Sales Volume in 2014 800000-10%(800000) 720,000 978,500 Selling Price $ 10.00 $8.92 Revenue $ 7,200,000.00 $8,728,220.00 Variable Cost Direct Material $ 1.49 $ 1,072,800.00 $1,457,965 Direct Labour $ 2.14 $ 1,540,800.00 $2,093,990 Variable OH $ 1.43 $ 1,029,600.00 $1,399,255 Fixed Cost $ 2,255,050.00 $2,255,050.00 Gross Profit $ 1,301,750.00 $1,521,960.00 Production Budget A B Sales Volume in 2014 720,000 978,500 End. Inventory 36,000 59,500 Total Production 756,000 1,038,000 Variable Cost Direct Material $ 1,126,440.00 $ 1,546,620.00 Direct Labour $ 1,617,840.00 $ 2,221,320.00 Variable OH $ 1,081,080.00 $ 1,484,340.00 Fixed Cost $ 2,255,050.00 $ 2,255,050.00 Total Production Cost $ 6,080,410.00 $ 7,507,330.00 COGS $ 5,898,250.00 $ 7,206,260.00 Inventory $ 182,160.00 $ 301,070.00
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