Selenelion Ltd is a small manufacturing business. For the year ending 30 June 2024, the company achieved
Question:
Selenelion Ltd is a small manufacturing business. For the year ending 30 June 2024, the company achieved sales of $2 772 000 and a gross profit margin of 30%. Although satisfied with this result, management was, however, keen to increase the company’s performance in the following year. Management was considering adjusting the unit price of its product, currently $12, to achieve a better outcome. It is considering two alternative strategies.
Under Strategy One, the selling price would be increased by $1.00, but it is expected that this increase would result in a decrease of 15% in sales volume (units) for the year, and inventory at 30 June 2025 would be equal to 4% of the units sold during the year. Strategy Two is to decrease the selling price by $1.00, which is expected to lead to an increase in sales of 30 000 units, and result in 20 000 units being on hand at 30 June 2025. Inventory on hand at 1 July 2024 was 15 000 units.
Projected cost data for the year ended 30 June 2025 are as follows
Required
(a) Prepare a sales budget and a production budget for the year ending 30 June 2025 under both strategies.
(b) Which strategy should management adopt? Why?
Step by Step Answer:
Accounting
ISBN: 9780730382737
11th Edition
Authors: John Hoggett, John Medlin, Keryn Chalmers, Claire Beattie