Nieto Industries had sales in 2011 of $6,131,700 and gross profit of $1,140,200.

Question

Nieto Industries had sales in 2011 of $6,131,700 and gross profit of $1,140,200. Management is considering two alternative budget plans to increase its gross profit in 2012. Plan A would increase the selling price per unit from $7.57 to $8.89. Sales volume would decrease by 5% from its 2011 level. Plan B would decrease the selling price per unit by $0.47. The marketing department expects that the sales volume would increase by 158,400 units. At the end of 2011, Nieto has 39,900 units of inventory on hand. If Plan A is accepted, the 2012 ending inventory should be equal to 5% of the 2012 sales. If Plan B is accepted, the ending inventory should be equal to 49,800 units. Each unit produced will cost $1.70 in direct labor, $1.30 in direct materials, and $1.10 in variable overhead. The fixed overhead for 2012 should be $1,943,800.

Explanation / Answer

in 2011 sales were of $6,131,700. unit price was 7.57. Nieto has 39,900 units of inventory on hand. for plan A 2012 sales volume = expected unit sales = 810 000 * 95 % = 769500 If Plan A is accepted, the 2012 ending inventory should be equal to 5% of the 2012 sales. desired ending finishing goods = 5 % * 769500 = 38475 Total required units = 769500 + 38475 = 807975 beginning finishing goods = 39900 required production units = 807975 - 39900 = 768075 Plan B 2012 sales volume = expected unit sales= 968400 desired ending finishing goods = 49800 Total required units = 968400 + 49800 = 1018200 beginning finishing goods = 39900 required production units = 1018200 - 39900 = 978300 hope this answers your queries .. :)

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