Marsh Industries had sales in 2013 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2013 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 2013, Marsh has 38,000 units of inventory on hand. If Plan A is accepted, the 2014 ending inventory should be equal to 5% of the 2014 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, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2014 should be $1,895,000.
Instructions
1. Prepare a sales budget for 2014 under each plan.
2. Prepare a production budget for 2014 under each plan.
3. Compute the production cost per unit under each plan. Why is the cost per unit different for each of the two plans? (Round to two decimals.)
4. Which plan should be accepted? (Hint: Compute the gross profit under each plan.)
Marsh Industries had sales in 2013 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2014.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2013 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 2013, Marsh has 38,000 units of inventory on hand. If Plan A is accepted, the 2014 ending inventory should be equal to 5% of the 2014 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, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2014 should be $1,895,000.
Instructions
Related questions
PLEASE SHOW WORK
On January 1, 2014, the Hardin Company budget committee hasreached agreement on the following data for the 6 months endingJune 30, 2014.
| Sales units: | First quarter 5,000; second quarter 6,000; third quarter7,000 | |
| Ending raw materials inventory: | 40% of the next quarterâs production requirements | |
| Ending finished goods inventory: | 25% of the next quarterâs expected sales units | |
| Third-quarter production: | 7,200 units |
The ending raw materials and finished goods inventories at December31, 2013, follow the same percentage relationships to productionand sales that occur in 2014. 3 pounds of raw materials arerequired to make each unit of finished goods. Raw materialspurchased are expected to cost $4 per pound.
1quarter 2quarter
Expected Unit Sales: ___________________________________________
Add Desired Ending Finished GoodsUnit:____________________ _______________________
Total Required Units: ___________________________________________
Less Begining Finished Goods Unit: ___________________________________________
Required Production Units: ___________________________________________
Prepare a direct materials budget by quarters for the 6-monthperiod ended June 30, 2014.
Units to be Produced: ___________________________________________
Direct Materials per unit: ___________________________________________
Total Pounds Needed for Production: ___________________________________________
Add: Desired Ending Direct Materials____________________ _______________________
Total Materials Required: ___________________________________________
Less Beginning Direct Materials: ___________________________________________
Direct Materials Purchases: ___________________________________________
Cost Per Pound: ___________________________________________
Total Cost of Direct Materials Purchases:____________________ _______________________
