Problem 23-3A (Part Level Submission) Hill Industries had sales in 2016 of $ 6,8
ID: 2512536 • Letter: P
Question
Problem 23-3A (Part Level Submission)
Hill Industries had sales in 2016 of $ 6,800,000 and gross profit of $ 1,100,000 . Management is considering two alternative budget plans to increase its gross profit in 2017.
Plan A would increase the selling price per unit from $ 8.00 to $ 8.40 . Sales volume would decrease by 10% from its 2016 level. Plan B would decrease the selling price per unit by $ 0.50 . The marketing department expects that the sales volume would increase by 100,000 units.
At the end of 2016, Hill has 40,000 units of inventory on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 5% of the 2017 sales. If Plan B is accepted, the ending inventory should be equal to 60,000 units. Each unit produced will cost $ 1.80 in direct labor, $ 1.40 in direct materials, and $ 1.20 in variable overhead. The fixed overhead for 2017 should be $ 1,000,000 .
Compute the Production cost per unit , the gross profit for each plan?
which plan should you choose
Problem 23-3A (Part Level Submission)
Hill Industries had sales in 2016 of $ 6,800,000 and gross profit of $ 1,100,000 . Management is considering two alternative budget plans to increase its gross profit in 2017.
Plan A would increase the selling price per unit from $ 8.00 to $ 8.40 . Sales volume would decrease by 10% from its 2016 level. Plan B would decrease the selling price per unit by $ 0.50 . The marketing department expects that the sales volume would increase by 100,000 units.
At the end of 2016, Hill has 40,000 units of inventory on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 5% of the 2017 sales. If Plan B is accepted, the ending inventory should be equal to 60,000 units. Each unit produced will cost $ 1.80 in direct labor, $ 1.40 in direct materials, and $ 1.20 in variable overhead. The fixed overhead for 2017 should be $ 1,000,000 .
Compute the Production cost per unit , the gross profit for each plan?
which plan should you choose
Explanation / Answer
Production under Plans: Plan A Plan B Sales units 765000 950000 Add: Ending Inventory 38250 60000 Less: Beginning Inventory 40000 40000 Production units 763250 970000 Manufacturing Cost per unit Material 1.4 1.4 Direc labour 1.8 1.8 Variable OH 1.2 1.2 Fixed OH 1.31 1.031 Production Cost per unit 5.71 5.431 GROSS profit: Sales revenue Plan A (765000 units @8.40) 6426000 Plan B (95000 units @7.50) 7125000 Less COGS Plan A (765000 units @5.71) 4368150 Plan B(950000 units @5.431) 5159450 GROSS profit: 2057850 1965550 Plan A to be choosen
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