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# Budgeting

Sales budget
Colt Industries had sales in 2008 of \$6,976,000 and gross profit of \$1,199,000. Management is considering two alternative budget plans to increase its gross profit in 2009.
Plan A would increase the selling price per unit from \$8.72 to \$9.16. Sales volume would decrease by 5% from its 2008 level. Plan B would decrease the selling price per unit by \$0.55. The marketing department expects that the sales volume would increase by 163,500 units.
At the end of 2008, Colt has 43,600 units of inventory on hand. If Plan A is accepted, the 2009 ending inventory should be equal to 5% of the 2009 sales. If Plan B is accepted, the ending inventory should be equal to 54,500 units. Each unit produced will cost \$1.96 in direct labor, \$2.18 in direct materials, and \$1.31 in variable overhead. The fixed overhead for 2009 should be \$2,065,550.
Prepare a sales budget for 2009 under each plan.
COLT INDUSTRIES
Sales Budget
For the Year Ending December 31, 2009
Plan A Plan B
Expected unit sales

Unit selling price × \$
× \$

Total sales \$
\$

Prepare a production budget for 2009 under each plan.
COLT INDUSTRIES
Production Budget
For the Year Ending December 31, 2009
Plan A Plan B

Total required units

Less:

Required production units

Compute the production cost per unit under each plan. (Round answers to 2 decimal places, e.g. 10.50.)
Plan A \$

Plan B \$

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

#### Solution Summary

The solution explains how to prepare a sales budget and a production budget under different plans.

\$2.19