Question

Grouper Industries had sales in 2016 of $6,880,000 and gross profit of $1,205,000. Management is considering two alternative budget plans to increase its gross profit in 2017. Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 10% from its 2016 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 102,000 units. At the end of 2016, Grouper has 41,000 units of inventory on hand. If Plan A is accepted, the 2017 ending inventory should be equal to 5% of the 2017 sales. If Plan B is accepted, the ending inventory should be equal to 64,000 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 2017 should be $1,360,000. (a) Prepare a sales budget for 2017 under each plan. (Round Unit selling price answers to 2 decimal places, e.g. 52.70.) GROUPER INDUSTRIES Sales Budget Plan A Plan B Expected unit sales Unit selling price A Total sales $

1. Prepare a sales budget for 2017 under each plan.

2. Prepare a production budget for 2017 under each plan.

3. Compute the production cost per unit under each plan.

4. Compute the gross profit under each plan.

5. Which plan should be accepted?

Answer 1

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1	Sales Budget	Plan A	Plan B
	Expected unit sales	7,74,000	9,62,000
	Selling Price	$                  8.40	$                  7.50
	Total Sales	$       65,01,600	$       72,15,000
2	Production Budget	Plan A	Plan B
	Unit sales	7,74,000	9,62,000
Plus:	Desired ending inventory	38,700	64,000
	Total needed	8,12,700	10,26,000
Less:	Openning inventory	41,000	41,000
	Required production	7,71,700	9,85,000
3	Production cost per unit	Plan A	Plan B
	Direct material	$                  1.40	$                  1.40
	Direct labor	$                  1.80	$                  1.80
	Variable manufacturing overhead	$                  1.20	$                  1.20
	Fixed manufacturing overhead	$                  1.76	$                  1.38
	Production cost per unit	$                  6.16	$                  5.78
4	Gross Profit	Plan A	Plan B
	Sales	$       65,01,600	$       72,15,000
Less:	Cost of goods sold	$       47,67,840	$       55,60,360
	Gross Profit	$       17,33,760	$       16,54,640
5	Plan A should be accepted

A. C E F Sales Budget 1 1 Plan A Plan B 6880000/8)+102000 (6880000/8)*0.9 2 Expected unit sales Selling Price 3 8.4 -8-0.5 Total Sales -C2*С3 D2*D3 5 Production Budget Plan A Plan B 6 2 Unit sales 7 -C2 -D2 8 Plus: Desired ending inventory C7*0.05 64000 Total needed -SUM(C7:C8) -SUM(D7:D8) 41000 10 Less: Openning inventory 41000 Required production -C9-C10 11 D9-D10 12 Production cost per unit Plan A Plan B 13 3 Direct material 1.4 14 1.4 Direct labor 15 1.8 1.8 Variable manufacturing overhead 1.2 16 1.2 1360000/C11 -1360000/D11 Fixed manufacturing overhead 17 =SUM(C14:C17) -SUM(D14:D17) Production cost per unit 18 19 20 4 Gross Profit Plan A Plan B Sales 21 C4 D4 22 Less: Cost of goods sold -C7*6.16 -D7*5.78 Gross Profit 23 -C21-C22 =D21-D22 24 Plan A should be accepted 25 5 st LO