Reference no: EM131007079
Remington INdustries had sales in 2012 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2013.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 5% from its 2012 level. Plan B would decrease the selling price per unit by .50. The marketing dept expects that the sales volume would increase by 150,000 units.
At the end of 2012, Remington has 40,000 units of inventory on hand. Plan A is accepted, the 2013 ending inventory should be equal to 5% of the 2013 sales. If Plan B is accepted, the ending inventory should be equal to 50,000 units. Each unit produced will cost 1.80 in direct labor, 2.00 in direct materials, and 1.20 in variable overhead. The fixed overhead for 2013 should be $1,895,000.
a) Prepare a sales budget for 2013 under each plan
b) Prepare production budget for 2013 under ea plan
c) Compute the production cost per unit under ea plan. Why is the cost per unit different for ea of the two plans? Round to two decimals
d) Which plan should be accepted? (compute the gross profit under each plan)
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