Question

Oriole industries had sales in 2021 of $7,480,000 and gross profit of $1,210,000. management is considering two alternative budget plans to increase its gross profit in 2022. plan a would increase the selling price per unit from $8.00 to $8.40. sales volume would decrease by 137,500 units from its 2021 level. plan b would decrease the selling price per unit by $0.50. the marketing department expects that the sales volume would increase by 143,000 units. at the end of 2021, oriole has 47,000 units of inventory on hand. if plan a is accepted, the 2022 ending inventory should be 43,000 units. if plan b is accepted, the ending inventory should be equal to 78,000 units. each unit produced will cost $1.50 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. the fixed overhead for 2022 should be $2,086,000. prepare a sales budget for 2022 under each plan.

Answer 1

The sales budget for Plan A is  $6,699,000 and Plan B is $8,085,000.

Sales Budget for 2022

Plan A

Sales (units) 797,500

($7,480,000/$8=937,500)

(935,000-137,500=797,500)

Selling Price $8.40

($8.00 + $0.40)

Sales (dollars) $6,699,000

(797,500×$8.40)

Plan B

Sales (units) 1,078,000

(935,000+ 143,000=1,078,000)

Selling Price $7.50

($8.00 - $0.50)

Sales (dollars) $8,085,000

(1,078,000×$7.50)

Therefore the sales budget for Plan A is  $6,699,000 and Plan B is $8,085,000.

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