Ogleby Industries has sales in 2016 of $5,600,000 (800,000 units) and gross pro

Question

Ogleby Industries has sales in 2016 of $5,600,000 (800,000 units) and gross pro t of $1,344,000. Management is considering two alternative budget plans to increase its gross profit in 2017.

Plan A would increase the selling price per unit from $7.00 to $7.60. Sales volume would decrease by 5% from its 2016 level. Plan B would decrease the selling price per unit by 5%. The marketing department expects that the sales volume would increase by 150,000 units.

Prepare sales and production budgets and compute cost per unit under two plans P9-3B Ogleby Industries has sales in 2016 of $5,600,000 (800,000 units) and gross profit of $1,344,000. Management is considering two alternative budget plans to increase its gross profit in 2017 (LO 2), E Plan A would increase the selling price per unit from $7.00 to $7.60. Sales volume would decrease by 5% from its 2016 level. Plan B would decrease the selling price per unit by 5%. The marketing department expects that the sales volume would increase by 150,000 units At the end of 2016, Ogleby has 70,000 units on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 90,000 units. If Plan B is accepted, the ending inven- tory should be equal to 100,000 units. Each unit produced will cost $2.00 in direct materi- als, $1.50 in direct labor, and $0.50 in variable overhead. The fixed overhead for 2017 should be $980,000 Instructions (a) Prepare a sales budget for 2017 under (1) Plan A and (2) Plan B (b) Prepare a production budget for 2014 under (1) Plan A and (2) Plan B (c) Compute the cost per unit under (1) Plan A and (2) Plan B. Explain why the cost per (c) Unit cost Plan A $5.26 Plan B $5.00 (d) Gross profit Plan A $1,778,400 Plan B $1,567,500 unit is different for each of the two plans. (Round to two decimals.) (d) Which plan should be accepted? (Hint: Compute the gross profit under each plan.)

Explanation / Answer

Solution a:

Solution b & c:

Solution d:

Sales Budget - Ogleby Industries - for the period December 31, 2017 Particulars Plan A Plan B Budgeted Sales Units 760000 950000 Selling price $7.60 $6.65 Total Sales $5,776,000.00 $6,317,500.00

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