Please answer in the same format, I will be sure to rate you well. Thanks! Quest

Question

Please answer in the same format, I will be sure to rate you well. Thanks!

Question 1 Hill Industries had sales in 2016 of $7,040,000 and gross profit of $1,127,000. 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 118,000 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 72,000 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 $1,365,000

Explanation / Answer

Existing Sales units 880000 (7040000/8) Existing Sales price 8 Plan A Plan B Expected Sales Units 792000 998000 (880000+118000) (880000-88000) Selling Price 8.4 7.5 (8+0.4) (8-0.5) Total Sales 6652800 7485000 Budget for 2017 Opening inventory 40000 40000 Sales During the year 792000 998000 Closing Inventory 39600 72000 (792000 X 5%) Production 791600 1030000 Sales+Closing -Opening) Production Cost under each menthod Plan A PlanB Direct Labour 1.8 1.8 Direct material 1.4 1.4 Voh 1.2 1.2 Cost per unit 4.4 4.4 Production 791600 1030000 Total Production Cost 3483040 4532000 Gross Profit under each plan Sales 6652800 7485000 Production cost 3483040 4532000 Gross profit 3169760 2953000 Plan A Should be accepted as having higer gross profit

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