p20 3b ogleby industries has sales in 2012 of 5 600 000 800 000 units 542035

Ogleby Industries has sales in 2012 of $5,600,000 (800,000 units) and gross profit of $1,344,000. Management is considering two alternative budget plans to increase its gross profit in 2013. Plan A would increase the selling price per unit from $7.00 to $7.60. Sales volume would decrease by 10% from its 2012 level. Plan B would decrease the selling price per unit by 5%. The marketing department expects that the sales volume would increase by 100,000 units. At the end of 2012, Ogleby has 70,000 units on hand. If Plan A is accepted, the 2013 ending inventory should be equal to 90,000 units. If Plan B is accepted, the ending inventory should be equal to 100,000 units. Each unit produced will cost $2.00 in direct materials, $1.50 in direct labor, and $0.50 in variable overhead. The fixed overhead for 2013 should be $925,000.

Instructions

(a) Prepare a sales budget for 2013 under (1) Plan A and (2) Plan B.

(b) Prepare a production budget for 2013 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 two plans. (Round to two decimals.)

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