Rerun Manufacturing Company is in the process of preparing its 2016 budget and i

Question

Rerun Manufacturing Company is in the process of preparing its 2016 budget and is anticipating the following changes:

25% increase in the number of units sold.
15% increase in the direct material unit cost.
10% increase in the direct labor cost per unit.
8% increase in the manufacturing overhead cost per unit.
12% increase in the marketing price.
4% increase in the administrative expenses.

Rerun does not keep any units in inventory.
The composition of the cost of finished products during 2015 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2015 is as follows:

Sales (33,000 units) $495,000     

Less sales returns 19,800     

Net sales 475,200     

Cost of Goods Sold 309,000     

Gross Profit $166,200

Selling Expenses $63,000    

Admin.Expenses 33,000 96,000

Net Income $70,200

What are estimated net sales for 2016, assuming the sales return/gross sales relationship remains constant?

$665,280.

$478,500.

$649,350.

$591,938.

Explanation / Answer

Current sales ( units) 33000 Revised sales (increase 25%) (33000*125%) 41250 Current price per unit (495000/33000) 15 Revised market price (15*112%) 16.8 Estimated Gross sales (41250*16.8) 693000 Less: Sales returns (19800/495000)*693000 27720 Net sales 665280 Option A is correct, that is $665280

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