Reference no: EM133104013
Question - Oriole Industries had sales in 2021 of $5,984,000 and gross profit of $968,000. Management is considering two alternative budget plans to increase its gross profit in 2022.
Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 110,000 units from its 2021 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 114,400 units.
At the end of 2021, Oriole has 36,000 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 32,000 units. If Plan B is accepted, the ending inventory should be equal to 56,000 units. Each unit produced will cost $1.50 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2022 should be $1,668,000.
Required -
(a) Prepare a sales budget for 2022 under each plan.
(b) Prepare a production budget for 2022 under each plan.
(c) Compute the production cost per unit under each plan.
(d) Compute the gross profit under each plan. Which plan should be accepted?
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