Question

CALCULATOR PRINTER VERSION BACK NE Problem 21-3A (Part Level Submission) Hill Industries had sales in 2016 of $6,800,000 and gross profit of $1,100,000. 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 100,000 units. At the end of 2016, Hill has 40,000 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 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 2017 should be $1.000.000, (a) Your answer is partially correct. Try again. Prepare a sales budget for 2017 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, 2017 Plan A Plan B Expected unit sales 765000 958000 Unit selling price 8.40

Answer 1

Part a: Sales budget

Current sales volume = 6,800,000/8 = 850,000 units

In Plan A, sales price is increased to $8.40 per unit, sales volume will decrease by 10%

Sales volume in Plan A = 765,000 units

In Plan B, selling price will be decreased by $0.50 per unit, the sales volume will increase by 100,000 units.

Sales volume in Plan B = 950,000 units

Sales budget is as follows:

Hill Industries Sales budget Particulars Plan A Plan B Expected sales volume 7,65,000 9,50,000 Unit selling price 8.40 Total sales 64,26,000 71,25,000 7.50

Part b: Production budget

The production budget prepared above is correct.

Just to explain it, the production budget will always start with the sales volume, then add the desired closing inventory volume. So, the total number of units required will be arrived. Subtract the opening inventory volume which will provide the number of units to be produced.

Part c: Production cost per unit

We first need to calculate the total production cost under both the plans. For variable costs like direct labor ,direct materials and variable overheads, we will multiply the variable cost per unit by the units to be produced. Then we will add the fixed cost into total variable cost to arrive at the total production cost. We will divide the total production cost by units to be produced to arrive at the production cost per unit.

Production cost per unit Particulars Plan A Plan B Units to be produced 7,63,250 9,70,000 Direct material @ $1.4 per unit 10,68,550 13,58,000 Direct labor @ $1.8 per unit 13,73,850 | 17,46,000 Variable overhead @ 1.2 per unit 9,15,900 11,64,000 Total variable cost 33,58,300 42,68,000 Fixed overhead 10,00,000 10,00,000 Total production cost 43,58,300 52,68,000 Production cost per unit 5.71 5.43