Question

Problem 24-03A a-b, c1, d (Part Level Submission) (Video)

Hill Industries had sales in 2019 of $6,800,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2020.

Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2019 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 2019, Hill has 40,000 units of inventory on hand. If Plan A is accepted, the 2020 ending inventory should be equal to 5% of the 2020 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, $1.40 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2020 should be $1,007,490.

(a) Your answer is correct. Prepare a sales budget for 2020 under each plan. (Round Unit selling price answers to 2 decimal places, e.g. 52.70.) HILL INDUSTRIES Sales Budget For the Year Ending December 31, 2020 Plan A Plan B Expected Unit Sales 765000 950000 Unit Selling Price POP Total Sales $6426000 $(7125000

Answer 1

Expected Unit Sales Unit Price Expected Revenue Plan A 765,000.00 8.40 6,426,000.00 Year 2020 Plan B 950,000.00 7.50 7,125,000.00 Beginning Inventory Addl Inventory Produced Desired Ending Inventory Total Production Units 40,000.00 725,000.00 38,250.00 763,250.00 40,000.00 910,000.00 60,000.00 970,000.00 Direct labour Direct Materials Variable Total Variable 1.80 1.40 1.20 4.40 1.80 1.40 1.20 4.40 1,007,490.00 1,007,490.00 Fixed Costs Fixed cost per additional Unit Produced 1.39 1.11 Production Cost per Unit Produced Plan A 5.79 Plan B 5.51

Need to calculate the AVERAGE cost of the Total Production Units

Factors:

Now in 2019 we know the Sales is 6,800,000

And the Unit Price is 8.O

So we now know the number of Units 850,000

But we don’t know the COST PER UNIT in 2019

The disaggregation of Variable Costs, Fixed Costs and Cogs (other) are not given but the Gross Margin (GP) is 1,100,000

So we must assume the aggregated total Costs 5,700,000 (Sales-GP)

There for the Cost per unit can be assumed to be 6.70

Now Consider in In 2020:

Total Required Unites Plan A = 803,250

Total Required Unites Plan B= 1,010,000

But 40,000 Units already produced AND FIXED CISTS for all is 1,007,490

Under Plan A

[(40000x6.70) + (763,250x5.79)]/Total Units i.e 803,250

UNIT COSTS PLAN A IS 5.83

Under Plan B

[(40000x6.70)+(970,000x5.51)]/Total Units i.e. 1,010,000

UNIT COSTS PLAN B IS 5.55