Litwin Industries had sales in 2015 of $5.6 million (800,000 units) and a gross profit of $1,344,000.
Question:
Plan A would increase the selling price per unit from $7 to $7.60. Sales volume would decrease by 5% from its 2015 level. Plan B would decrease the selling price per unit by 5%. The marketing department expects that the sales volume would increase by 150,000 units.
At the end of 2015, Litwin had 70,000 units on hand. If it accepts Plan A, the 2016 ending inventory should be equal to 90,000 units. If it accepts Plan B, the ending inventory should be equal to 100,000 units. Each unit produced will cost $2 in direct materials, $1.50 in direct labour, and $0.50 in variable overhead. The fixed overhead for 2016 should be $980,000.
Instructions
(a) Prepare a sales budget for 2016 under (1) Plan A and (2) Plan B.
(b) Prepare a production budget for 2016 under (1) Plan A and (2) Plan B.
(c) Calculate 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.
(d) Which plan should Litwin Industries accept?
Ending Inventory
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...
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Related Book For
Managerial Accounting Tools for Business Decision Making
ISBN: 978-1118856994
4th Canadian edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso, Ibrahim M. Aly
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