Question

Hill Industries had sales in 2016 of $6880000 and gross profit of $1205000. Management is considering two alternative budget plans to increase its gross profit in 2017.

Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2016 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 102000 units.

At the end of 2016, Hill has 41000 units of inventory on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 5% of the 2017 sales. If Plan B is accepted, the ending inventory should be equal to 64000 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 2017 should be $1360000.

Sales, Production, Direct Material and Direct Labor budgets needed

Answer 1

Solution:

Current sales units = $6,880,000 /8 = 860000

Sales Budget - Hills Industries - for the period December 31, 2017
Particulars	Plan A	Plan B
Budgeted Sales Units	774000	962000
Selling price	$8.40	$7.50
Total Sales	$6,501,600.00	$7,215,000.00

Production Budget - Hills Industries - for the period December 31, 2017
Particulars	Plan A	Plan B
Budgeted Sales Units	774000	962000
Add: Ending Inventory	38700	64000
Less: Beginning inventory	41000	41000
Estimated production units	771700	985000
Direct material cost	$1,080,380.00	$1,379,000.00
Direct Labor cost	$1,389,060.00	$1,773,000.00
Variable overhead cost	$926,040.00	$1,182,000.00
Fixed Overhead	$1,360,000.00	$1,360,000.00
Estimate production cost	$4,755,480.00	$5,694,000.00
Production cost per unit	$6.16	$5.78

Estimated Gross Profit - Hills Industries - for the period December 31, 2017
Particulars	Plan A	Plan B
Total Sales	$6,501,600.00	$7,215,000.00
Cost of Goods Sold	$4,767,840.00	$5,560,360.00
Gross Profit	$1,733,760.00	$1,654,640.00