Question

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 selli HILL INDUSTRIES Sales Budget For the Year Ending December 31, 2020 Plan A Plan B Expected Unit Sales 765000 950000 T Unit Selling Price A - 8.40 7.50 Total Sales Total Sales A 6426000 7125000

Please help me with this part

Answer 1

(c1)
	Plan A	Plan B
Direct labor per unit	$                       1.80	$                       1.80
Direct materials per unit	$                       1.40	$                       1.40
Variable overhead per unit	$                       1.20	$                       1.20
Fixed overhead per unit [ Total fixed overhead / Required production units ]	$                       1.32	$                       1.04
Production cost per unit	$                       5.72	$                       5.44

(d)
	Plan A	Plan B
Total sales	6426000	7125000
(-) Cost of goods sold [ Expected unit sales * Production cost per unit ]	4375800	5168000
Gross profit	2050200	1957000

Which plan should be accepted ?
Plan A	Should be accepted.