Question

In: Accounting

as follows: Sales (160,000 units) $960,000 Cost of goods sold

as follows:

Sales (160,000 units) $960,000

Cost of goods sold 640,000

Gross margin 320,000

Operating expenses 260,000

Operating income $60,000

Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 10%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.

a) What is budgeted sales for 2016? $ _________

b) What is budgeted cost of goods sold for 2016? $___________

Expert Solution

(a) Calculaltion of budgeted sales for 2016 is as follows:

Budgeted sales = Budgeted selling units * Budgeted Selling price per unit

= 144,000 units * $ 6.75 per unit

= $ 972,000

Thus, budgeted sales for 2016 is $ 972,000

Working note:

1. Calculation of Budgeted selling units is as follows:

Expects a decrease in sales volume of 10%

Budgeted selling units = Current selling units - ( 10% of current selling unit)

160,000 units - ( 10% of 160,000 )

= 160,000 units - 16,000 units

= 144,000 units

2. Calculation of Budgeted Selling price per unit is as follows:

Budgeted Selling price per unit = Current selling price per unit + ( 12.5% of current selling price per unit )

= $ 6 per unit + ( 12.5% of $ 6 )

= $ 6 per unit + $ 0.75 per unit

= $ 6.75 per unit

Current selling price per unit = Sales / Selling units

= $ 960,000 / 160,000

= $ 6 per unit

(b) Calculation of budgeted cost of goods sold for 2016 is as follows:

Budgeted cost of goods sold = Budgeted Selling units * Cost of goods sold per unit

= 144,000 units * $ 4 per unit

= $ 576,000

Thus, budgeted cost of goods sold for 2016 is $ 576,000.

Working note:

1. Budgeted Selling units (refer working note 1 of answer a )

2.Calculation of Cost of goods sold per unit is as follows:

There is no change in Cost of goods sold per unit thus:

Cost of goods sold per unit = Cost of goods sold / Selling units

= $ 640,000 / 160,000

= $ 4 per unit

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