Acc560 Managerial Accounting: P9-3A Colt Industries had sales in 2008 of $6,400,000

Acc560 Managerial Accounting

P9-3A
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 the 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 units 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.

Instructions:
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. (Round answers to 2 decimal places, e.g. 10.50.)
d. Which plan should be accepted? (Hint: Compute the gross profit under each plan.)
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