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Hirsch Industries Case Study: Budget Planning

Hirsch Industries has sales in 2005 of $5,250,000(750,000 units)and gross profit of 1,587,500. Management is considering two alternative budget plans to increase its gross profit in 2006.
Plan A would increase the selling price per unit from 7.00 to 7.60. Sales volume would decrease by 10% from its 2005 level. Plan B would decrease the selling price per unti by 5%. the marketing department expects that the sales volume would increase by 100,000 units.
At the end of 2005, Hirsh has 75,000 units on hand. If Plan A is accepte, the ending inventory should be 90,000 units. If Plan B is chosen the ending inventory should be 100,000. Each unit produced will cost $2.00 in direct materials, $1.50 in direct labor, and $0.50 in variable ovehead. the fixed overhead for 2006 should be $965,000

(a) Prepare a sales budget for 06 under plan (A) and plan (B)
(b) prepare a production budget for 06 under plan (A) and plan (B)
(c) Compute the cost per unit under plan A and 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? how do i compute the gross profit under each plan.

Solution Summary

Budget planning help for Hirsch Industries to increase gross profit sales is discussed. Two budget plans are analyzed.