Problem 23-3A Hill Industries had sales in 2016 of $7 200000 and gross profit of

Question

Problem 23-3A Hill Industries had sales in 2016 of $7 200000 and gross profit of $1,263000 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 $840 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 113,000 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 $1,231,000 Prepare a sales budget for 2017 under each plan. (Round Unit selling price answers to 2 decimal places, e.g. 52.70.) HILL INDUSTRIES Sales Budget Expected unit sales Unit seling pIC Prepare a production budget for 2017 under each plan Produetion Budget Plan A Plan B

Explanation / Answer

Req Sales Budget Plan A Plan B Sales units 810,000 1013000 Expected Selling price 8.4 7.5 Budgeted Sales in $ 6804000 7597500 Note: 2016 Sales units: $ 7200,000/ $ 8 per unit: 900,000 units Req Production Budget: Plan A Plan B Expected sales units 810,000 1,013,000 Add: Desired ending invnentory 40500 60,000 Total Needs 850,500 1,073,000 Less: beginning Inventory 40,000 40,000 Budgeted Production units 810,500 1,033,000 Req Production cost per unit: Plan A Plan B Material cost perunit 1.4 1.4 Labour cost per unit 1.8 1.8 Variable OH 1.2 1.2 Fixed OH Plan A (1231000/810500) 1.52 Plan B (1231000/1033000) 1.19 PRODUCTION COST PER UNIT 5.92 5.59 Req : Gross Profit: Plan A Plan B Sselling price per unit 8.4 7.5 Less: Production cost per unit 5.92 5.59 Gross Profit per unit 2.48 1.91 Number of units sold 810,000 1,013,000 Total Gross Profit 2008800 1934830 Hence, Plan A shall be accepted

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