I need help with part C. I did A and b just I want help with part c and d. Probl

Question

I need help with part C. I did A and b just I want help with part c and d.

Problem 21-3A (Part Level Submission)

Marsh Industries had sales in 2013 of $6,912,000 and gross profit of $1,188,000. Management is considering two alternative budget plans to increase its gross profit in 2014.

Plan A would increase the selling price per unit from $8.64 to $9.07. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.54. The marketing department expects that the sales volume would increase by 162,000 units.

At the end of 2013, Marsh has 43,200 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 54,000 units. Each unit produced will cost $1.94 in direct labor, $1.35 in direct materials, and $1.30 in variable overhead. The fixed overhead for 2014 should be $2,046,600.

Plan A

Plan B

Which plan should be accepted?

Problem 21-3A (Part Level Submission)

Marsh Industries had sales in 2013 of $6,912,000 and gross profit of $1,188,000. Management is considering two alternative budget plans to increase its gross profit in 2014.

Plan A would increase the selling price per unit from $8.64 to $9.07. Sales volume would decrease by 10% from its 2013 level. Plan B would decrease the selling price per unit by $0.54. The marketing department expects that the sales volume would increase by 162,000 units.

At the end of 2013, Marsh has 43,200 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 54,000 units. Each unit produced will cost $1.94 in direct labor, $1.35 in direct materials, and $1.30 in variable overhead. The fixed overhead for 2014 should be $2,046,600.

Plan A

Plan B

Gross Profit

$

$

Which plan should be accepted?

Plan BPlan A should be accepted.

Explanation / Answer

Solution:

Total variable costs (712800 x 4.59, 972800 x 6.69)

Total fixed costs (given)

Tota units (From part b)

d)

Sales (720,000 x 9.07, 962,000 x 8.10)

Cost of goods sold (720,000 x 7.46, 962,000 x 6.69)

Plan B should be accepted because it produces higher gross profit than Plan A.

c) Variable costs = 4.59 (1.94 + 1.35 + 1.30) Plan A Plan B Total variable costs 3271752 4465152 Total fixed costs 2046600 2046600 Total costs 5318352 6511752 Total units 712800 972800 Unit cost 7.46 6.69

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