Question

Hill Industries had sales in 2019 of $7,120,000 and gross profit of $1,121,000. Management is considering two alternative budget plans to increase its gross profit in 2020. Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2019 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 120,000 units. At the end of 2019, Hill has 48,000 units of inventory on hand. If Plan A is accepted, the 2020 ending inventory should be equal to 5% of the 2020 sales. If Plan B is accepted, the ending inventory should be equal to 61,000 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 2020 should be $1,110,270. Prepare a sales budget for 2020 under each plan. (

Answer 1

The correct answer is $6,728,400 for product A, and $7,575,000 for product B.

Step-by-step explanation:

Sales budget for 2020 for the year ending:-

Sales unit = sales ÷ selling price per unit

= $7.120,000 ÷ $8

= 890,000 units

Sales unit of product A= 890000 - 890000 × 10%

= 801,000 units

Sales unit of product B= 890,000 + 120,000

= 101,0000 units

Total sales = sales unit × selling price per unit

Total sales of product A = 801,000 × $8.40

= $6,728,400

Total sales of product B = 1,010,000 × $7.50

= $7,575,000