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.

Question

Business

Liberty Powell

16 February, 01:53

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.

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Answers (1)

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Ramon Bridges · Answer 1

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