Reference no: EM132043341

Question - The Sales Budget and CVP Analysis

CNX Motors is preparing a sales budget for the current year for the service department. The budget based on last year's actual amounts. Management is interested in understanding what might happen if the service department has an increase in sales volume (i.e., the number of mechanic hours) or an increase in the average revenue per mechanic hour. They believe that, because of economic conditions in the local market, it is unlikely that both would increase. Last year's sales amounts were as follows:

	Mechanic Hours	Total Revenues
January	1,174	$11,681
February	1,057	10,538
March	1,125	11,261
April	1,516	15,008
May	1,724	16,981
June	2,515	25,014
July	2,746	27,185
August	3,107	30,604
September	2,421	23,823
October	2,211	22,154
November	1,709	17,090
December	1,524	15,125

Required

A. Compute the average revenue per mechanic hour for the current year on the basis of last year's actual data. Round the average hourly rate to the nearest penny.

B. Prepare a monthly sales budget for the current year, assuming that monthly sales volume (i.e., mechanic hours) will be 10 percent greater than it was in the same month last year. Assume that the average revenue per mechanic hour is the same as you computed in question A. Round budgeted hours to one decimal and budgeted revenues to the nearest dollar.

C. Prepare a monthly sales budget for the current year, assuming that the average revenue per mechanic hour computed in question A increased by 5 percent. Assume also that the number of mechanic hours stays the same as in the previous year. That is, there is no increase or decrease in the monthly sales volume. Round the rate per mechanic hour to two decimals and budgeted revenues to the nearest dollar.

D. For the current year in total, is it more advantageous to increase sales volume by 10 percent or average revenue per hour by 5 percent? Remember the impact of variable and fixed costs on these projections.