Question

Problem 23-3A (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 . Collapse question part (a) Correct answer. Your answer is correct. 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 Entry field with correct answer Plan A Plan B Expected unit sales Entry field with correct answer 765000 Entry field with correct answer 950000 Unit selling price $ Entry field with correct answer 8.4 $ Entry field with correct answer 7.5 Total sales $ Entry field with correct answer 6426000 $ Entry field with correct answer 7125000 SHOW SOLUTION LINK TO TEXT Attempts: 2 of 5 used Collapse question part (b) Correct answer. Your answer is correct. Prepare a production budget for 2017 under each plan. HILL INDUSTRIES Production Budget Entry field with correct answer Plan A Plan B Entry field with correct answer Entry field with correct answer 765000 Entry field with correct answer 950000 Entry field with correct answer : Entry field with correct answer Entry field with correct answer 38250 Entry field with correct answer 60000 Entry field with correct answer Entry field with correct answer 803250 Entry field with correct answer 1010000 Entry field with correct answer : Entry field with correct answer Entry field with correct answer 40000 Entry field with correct answer 40000 Entry field with correct answer Entry field with correct answer 763250 Entry field with correct answer 970000 SHOW SOLUTION LINK TO TEXT Attempts: 2 of 5 used Collapse question part (c) Compute the production cost per unit under each plan. (Round answers to 2 decimal places, e.g. 1.25.) Plan A Plan B Production cost per unit Also what is the gross profit for each plan?

Answer 1

Solution a:

Current sales units = $6,800,000 / $8 = 850000 units

Sales Budget - Hills Industries - for the period December 31, 2017
Particulars	Plan A	Plan B
Budgeted Sales Units	765000	950000
Selling price	$8.40	$7.50
Total Sales	$6,426,000.00	$7,125,000.00

Solution b & c:

Production Budget - Hills Industries - for the period December 31, 2017
Particulars	Plan A	Plan B
Budgeted Sales Units	765000	950000
Add: Ending Inventory	38250	60000
Less: Beginning inventory	40000	40000
Estimated production units	763250	970000
Direct material cost	$1,068,550.00	$1,358,000.00
Direct Labor cost	$1,373,850.00	$1,746,000.00
Variable overhead cost	$915,900.00	$1,164,000.00
Fixed Overhead	$1,000,000.00	$1,000,000.00
Estimate production cost	$4,358,300.00	$5,268,000.00
Production cost per unit	$5.71	$5.43

Solution d:

Estimated Gross Profit - Hills Industries - for the period December 31, 2017
Particulars	Plan A	Plan B
Total Sales	$6,426,000.00	$7,125,000.00
Cost of Goods Sold	$4,368,150.00	$5,158,500.00
Gross Profit	$2,057,850.00	$1,966,500.00