Speier industries has sales in 2010 of 5600000 800000

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Reference no: EM13602121

Speier Industries has sales in 2010 of $5,600,000 (800,000 units)and gross profit of $1,344,000. Management is considering twoalternative budget plans to increase its gross profit in 2011.

Plan A would increase the selling price per unit from $7.00 to$7.60. Sales volume would decrease by 10% from its 2010 level. PlanB would decrease the selling price unit by 5%. The marketingdepartment expects that the sales volume would increase by 100,000units.

At the end of 2010, Speier has 70,000 units on hand. If Plan A isaccepted, the 2011 ending inventory should be equal to 90,000units. If Plan B is accepted, the ending inventory should be equalto 100,000 units. Each unit produced will cost $2.0 in directmaterials, $1.50 in direct labor, and $0.50 in variable overhead.The fixed overhead for 2011 should be $925,000.

Instructions

(a) Prepare a sales budget for 2011 under (1) Plan A and (2) PlanB.

(b) Prepare a production budget for 2011 under (1) Plan A and (2)Plan B.

(c) Compute the cost per unit under (1) Plan A and (2) Plan B.Explain why the cost per unit is different for each of the twoplans. (Round to two decimals.)

(d) Which plan should be accepted? (Hint: Compute the gross profitunder each plan.

Reference no: EM13602121

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