Question

Hill Industries had sales in 2019 of $7,600,000 and gross profit of $1,199,000. 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 107,000 units. At the end of 2019, Hill has 48,000 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 64,000 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 $1,767,480.

Prepare a sales budget for 2020 under each plan.

Answer 1

Answer:

Plan A:

Sales in units= 855,000

Sales revenue= $7,182,000

Plan B:

Sales in units= 1,057,000

Sales revenue= $7,927,500

Explanation:

Giving the following information:

Hill Industries had sales in 2019 of $7,600,000

Plan A:

Selling price= $8.4

Sales= 10% lower

Plan B:

Selling price= $7.5

Sales= 107,000 units higher

First, we need to determine the number of units sold in 2019:

Units sold= 7,600,000/8= 950,000 units

Plan A:

Sales in units= 950,000*0.9= 855,000

Sales revenue= 855,000*8.4= $7,182,000

Plan B:

Sales in units= 950,000 + 107,000= 1,057,000

Sales revenue= 1,057,000*7.5= $7,927,500