Hill Industries had sales in 2016 of $6,960,000 and gross profit of $1,152,000.
ID: 2535757 • Letter: H
Question
Hill Industries had sales in 2016 of $6,960,000 and gross profit of $1,152,000. 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 $8.40. 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 104,000 units.
At the end of 2016, Hill has 45,000 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 72,000 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 $1,662,000.
Plan A
Plan B
Plan A
Plan B
Plan A
Plan B
Plan A
Plan B
Hill Industries had sales in 2016 of $6,960,000 and gross profit of $1,152,000. 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 $8.40. 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 104,000 units.
At the end of 2016, Hill has 45,000 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 72,000 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 $1,662,000.
Explanation / Answer
Solution 1:
Current sales volume = $6,960,000 / $8 = 870000 units
Solution 2 & 3:
Solution 4:
Note: You may found difference in figures of gross profit as gross profit is calculated considering exact production cost per unit $6.54 for Plan A and $6.06 for Plan B. The mismatch is due to rounding off differences.
Solution 5:
As gross profit under plan A is higher than gross profit under plan B, therefore Plan A should be accepted
Sales Budget - Hills Industries - for the period December 31, 2017 Particulars Plan A Plan B Budgeted Sales Units 783000 974000 Selling price $8.40 $7.50 Total Sales $6,577,200.00 $7,305,000.00Related Questions
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