Hill Industries had sales in 2016 of $6,880,000 and gross profit of $1,192,000.
ID: 2483012 • Letter: H
Question
Hill Industries had sales in 2016 of $6,880,000 and gross profit of $1,192,000. 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 107,000 units.
At the end of 2016, Hill has 43,000 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 $1,995,000.
compute the gross profit under each plan
Explanation / Answer
Plan A Plan B Sales volume in 2016 860,000 10% decrease 774,000.0 881,000.0 Sales 6,501,600.0 6,607,500.0 Closing stock 325,080.0 Direct labor 1,393,200 1,585,800 Direct material 1,083,600 1,233,400 Variable overhead 928,800 1,057,200 Fixed overhead 1,995,000 1,995,000 Gross profit 1,101,000 736,100