Problem 21-3A (Part Level Submission) Marsh Industries had sales in 2013 of $6,4
ID: 2473153 • Letter: P
Question
Problem 21-3A (Part Level Submission)
Marsh Industries had sales in 2013 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2013 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 2013, Marsh has 38,000 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 60,000 units. Each unit produced will cost $1.80 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2014 should be $1,895,000.
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(a)
MARSH INDUSTRIES
Sales Budget
For the Year Ending December 31, 2014
Plan A
Plan B
Expected unit sales
Unit selling price
Total sales
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(b)
MARSH INDUSTRIES
Production Budget
For the Year Ending December 31, 2014
Plan A
Plan B
Problem 21-3A (Part Level Submission)
Marsh Industries had sales in 2013 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2013 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 2013, Marsh has 38,000 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 60,000 units. Each unit produced will cost $1.80 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2014 should be $1,895,000.
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Explanation / Answer
2013: Number of units sold = $6400000 / $8 per unit = 800000 units
2014:
Plan A: Number of units to be sold = 800000 - 10% of 800000 = 800000 - 80000 = 720000 units
Selling price per unit = $8.40 per unit
Plan B: Number of units to be sold = 800000 + 100000 = 900000 units
Selling price per unit = $8 - $0.50 = $7.50 per unit
(b)
Variable cost per unit of production = direct material cost per unit + direct labour cost per unit + variable overhead cost per unit = $1.30 + $ 1.80 + $ 1.20 = $4.30 per unit
Plans Plan A Plan B Expected unit sales 720000 900000 Unit selling price ($) 8.40 7.50 Total sales ($) 6048000 6750000Related Questions
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