Problem 21-3A (Part Level Submission) Marsh Industries had sales in 2013 of $7,0

Question

Problem 21-3A (Part Level Submission) Marsh Industries had sales in 2013 of $7,040,000 and gross profit of $1,210,000. Management is considering two alternative budget plans to increase its gross profit in 2014. Plan A would increase the selling price per unit from $8.80 to $9.24. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.55. The marketing department expects that the sales volume would increase by 165,000 units. At the end of 2013, Marsh has 44,000 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 55,000 units. Each unit produced will cost $1.98 in direct labor, $1.38 in direct materials, and $1.32 in variable overhead. The fixed overhead for 2014 should be $2,084,500. Your answer is correct. 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 720,000 965,000 Unit selling price 9.24 8.25 Total sales 6,652,800 7,961,250

Explanation / Answer

PARTICULARS PLAN A PLAN B EXPECTED UNIT SALES 720000 965000 ADD:BEGINNING FG UNITS 44000 55000 DESIRED ENDING FG UNITS 764000 1020000 LESS:ENDING GF UNITS 38200 51000 ACTUAL SALES 725800 969000 SALES PRICE 6706392 7994250 LESS:COST DIRECT LABOUR 1437084 1918620 DIRECT MATERIAL 1001604 1337220 VARIABLE OVERHEAD 958056 1279080 CONTRIBUTION 3309648 3459330 LESS:FIXED COST 2084500 2084500 OPERATING PROFIT 1225148 1374830

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