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Problem 23-3A (Part Level Submission)
Hill Industries had sales in 2016 of $ 6,800,000 and gross
profit of $ 1,100,000 . 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 100,000 units.
At the end of 2016, Hill has 40,000 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 60,000 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 $
1,000,000 .
Compute the Production cost per unit , the gross profit for each
plan?
which plan should you choose
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