Advanced Enterprises reports yearminus?end information from 2018 as? follows: ?(
ID: 2525211 • Letter: A
Question
Advanced Enterprises reports
yearminus?end
information from 2018 as? follows:
?(161 comma 250161,250
$ 967 comma 000$967,000
Cost of goods sold
645 comma 000645,000
Gross margin
322 comma 000322,000
Operating expenses
264 comma 000264,000
Operating income
$ 58 comma 000$58,000
Advanced is developing the 2019 budget. In 2019 the company would like to increase selling prices by
12.512.5?%,
and as a result expects a decrease in sales volume of
99?%.
All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
Should Advanced increase the selling price in? 2019??
Sales?(161 comma 250161,250
?units)$ 967 comma 000$967,000
Cost of goods sold
645 comma 000645,000
Gross margin
322 comma 000322,000
Operating expenses
264 comma 000264,000
Operating income
$ 58 comma 000$58,000
Explanation / Answer
For making the decision that whether to increase the selling price in 2019 or not, we need to prepare the budgeted income statement for 2019 which is shown as follows:-
Units Expected to be sold in 2019 = 161,250 units*(100% - 9%) = 146,737.50 units
Existing Selling Price = $967,000/161,250 = $6 per unit (approx)
New Selling Price = $6 per unit*112.50% = $6.75 per unit
Cost of goods sold per unit = $645,000/161,250 = $4 per unit
Budgeted Income Statement
For the year ending December 31, 2019 (Amounts in $)
As there is an expected increase in net operating income from $58,000 in 2018 to $139,528 in 2019 with the increase in selling price, Advanced should increase the selling price in 2019.
Sales (146,737.50 units*$6.75 per unit) 990,478 Less: Cost of Goods Sold (146,737.50 units*$4 per unit) (586,950) Gross Margin 403,528 Less: Operating Expenses (Fixed Cost) (264,000) Operating Income 139,528Related Questions
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