Question
Blossom Industries had sales in 2021 of $5,440,000 and gross profit of $880,000. Management is considering two alternative budget plans to increase its gross
Blossom Industries had sales in 2021 of $5,440,000 and gross profit of $880,000. Management is considering two alternative budget plans to increase its gross profit in 2022. Plan A would increase the selling price per unit from $8.00 to $8.40. Sales volume would decrease by 100,000 units from its 2021 level. Plan B would decrease the selling price per unit by $0.50. The marketing department expects that the sales volume would increase by 104,000 units. At the end of 2021, Blossom has 32,000 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 28,000 units. If Plan B is accepted, the ending inventory should be equal to 48,000 units. Each unit produced will cost $1.50 in direct labor, $1.30 in direct materials, and $1.20 in variable overhead. The fixed overhead for 2022 should be $1,516,000. Gross Profit Plan A Plan B Which plan should be accepted? Plan A should be accepted.
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