Question

Sheffield Industries had sales in 2016 of $6,880,000 and gross profit of $1,106,000. 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 102,000 units. At the end of 2016, Sheffield has 48,000 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 $1,473,000.

Answer 1

Production Budget

For the year ended December 31,2017

	Plan A	Plan B
Sale unit	774000	962000
Add: Desired ending inventory	38700	60000
Total required unit	812700	1022000
Less: Beginning inventory	-48000	-48000
Production unit	764700	974000