Jaber Industries has sales in 2021 of $5,250,000 (656,250 units) and gross profit of $1,587,500. 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 $8.60. Sales volume would decrease by 10% from its 2021 level. Plan B would decrease the selling price per unit by 5%. The marketing department expects that the sales volume would increase by 100,000 units.

At the end of 2021, Jaber Industries has 75,000 units on hand. If Plan A is accepted, the 2021 ending inventory should be equal to 87,500 units. If Plan B is accepted, the ending inventory should be equal to 100,000 units. Each unit produced will cost $2.00 in direct materials, $1.50 in direct labour, and $0.50 in variable overhead. The fixed overhead for 2022 should be $965,000.

Required:

(a) Prepare a sales budget for 2022 under (1) Plan A and (2) Plan B.

(b) Prepare a production budget for 2022 under (1) Plan A and (2) Plan B.

(c) Compute 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. (Round to two decimals).

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