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Colt Industries had sales in 2008 of $6,400,000 and gross profit of $1,100,000

Colt Industries had sales in 2008 of $6,400,000 and gross profit of $1,100,000
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ACCOUNTING

Colt Industries had sales in 2008 of $6,400,000 and gross profit of $1,100,000. Management is considering two alternative budget plans to increase its gross profit in 2009.
Plan A would increase its selling price per unit from $8.00 to $8.40. Sales volume would decrease by 5% from its 2008 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 150,000 units.
At the end of 2008, Colt has 40,000 of inventory on hand. If plan A is accepted, the 2009 ending inventory should be equal to 5% of the 2009 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, $1.25 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2009 should be $1,895,000

A) Prepare a sales budget for 2009 under each plan
B)Prepare a production budget for 2009 under each plan
C) Compute the production cost per unit under each plan. Why is the cost per unit different for each of the two plans? (Round to two decimals)
D) Which plan should be accepted (Hint: Compute the gross profit under each plan)

 

FILE: MS WORD

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