Mercer Inc is preparing its annual budgets for the year ending December 31, 2008. Accounting assistants furnish the following data. Product Product LN 35 LN 40 Sales Budget: Anticipated Sales $300,000.00 $180,000.00 Unit Selling Price $20.00 $30.00 Production Budget: Desired End Inv $30,000.00 $25,000.00 Beg inv $20,000.00 $15,000.00 Direct Mat Budget: Direct Mat per unit $2.00 $3.00 Mat Desired End Inv $15,000.00 $7,500.00 Mat Beg Inv $20,000.00 $5,000.00 Cost per Pound $2.00 $3.00 Direct Labor Budget: Labor time per unit $0.50 $0.80 Labor Rate $8.00 $8.00 Budgeted Inc Stat: Total Unit Cost $6.00 $11.00 Overhead Cost Selling Expenses $280,000.00 $220,000.00 Administrative Exp $200,000.00 $190,000.00 30% Taxes Prepare the following budgets 1. Sales 2. Production 3. Direct Materials 4. Direct Labor 5. Income Statement

Case P Part I Mercer Inc. is preparing its annual budgets for the year ending December 31, 201X. Accounting assistants furnish the following data. Product Product LN35 LN40 Sales budget: Anticipated volume in units 300,000 180,000 Unit selling price $20 $30 Production budget: Desired ending finished goods units 30,000 25,000 Beginning finished goods units 20,000 15,000 Direct materials budget: Direct materials per unit (pounds) 2 3 Desired ending direct materials pounds 50,000 20,000 Beginning direct materials pounds 40,000 10,000 Cost per pound $2 $3 Direct labor budget: Direct labor time per unit 0.5 0.75 Direct labor rate per hour $12 $12 Budgeted income statement: Total unit cost $11 $20 An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative expense budget. The latter shows selling expenses of $560,000 for product LN35 and $440,000 for product LN40, and administrative expenses of $420,000 for product LN35 and $380,000 for product LN40. Income taxes are expected to be 30%. Prepare the following budgets for the year. Show data for each product. Quarterly budgets should not be prepared. A. Sales d. Direct labor B. Production e. Income statement (Note: Income taxes are not C. Direct materials allocated to the products.) Part II Litwin Industries has sales in 2011 of $4,900,000 (700,000 units) and gross profit of $1,187,500. Management is considering two alternative budget plans to increase its gross profit in 2012. Plan A would increase the selling price per unit from $7.00 to $7.60. Sales volume would decrease by 10% from its 2008 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 2011, Litwin has 70,000 units on hand. If Plan A is accepted, the 2012 ending inventory should be equal to 90,000 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 labor, and $0.50 in variable overhead. The fixed overhead for 2009 should be $975,000. Instructions: a. Prepare a sales budget for 2012 under (1) Plan A and (2) Plan B. b. Prepare a production budget for 2012 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.) Part III Medico Medical Supply Company uses flexible budgets that are based on the following data: Sales commissions 5% of sales Advertising expense 12% of sales Miscellaneous selling expense $2,000 plus 3% of sales Office salaries expense $8,000 per month Office supplies expense 2% of sales Miscellaneous administrative expense $500 per month plus 1% of sales Instructions: Prepare a flexible selling and administrative expenses budget for May 2011, for sales volumes of $120,000, $160,000, and $200,000. Case P Part I Mercer Inc. is preparing its annual budgets for the year ending December 31, 201X. Accounting assistants furnish the following data. Product Product LN35 LN40 Sales budget: Anticipated volume in units 300,000 180,000 Unit selling price $20 $30 Production budget: Desired ending finished goods units 30,000 25,000 Beginning finished goods units 20,000 15,000 Direct materials budget: Direct materials per unit (pounds) 2 3 Desired ending direct materials pounds 50,000 20,000 Beginning direct materials pounds 40,000 10,000 Cost per pound $2 $3 Direct labor budget: Direct labor time per unit 0.5 0.75 Direct labor rate per hour $12 $12 Budgeted income statement: Total unit cost $11 $20 An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative expense budget. The latter shows selling expenses of $560,000 for product LN35 and $440,000 for product LN40, and administrative expenses of $420,000 for product LN35 and $380,000 for product LN40. Income taxes are expected to be 30%. Prepare the following budgets for the year. Show data for each product. Quarterly budgets should not be prepared. A. Sales d. Direct labor B. Production e. Income statement (Note: Income taxes are not C. Direct materials allocated to the products.) Part II Litwin Industries has sales in 2011 of $4,900,000 (700,000 units) and gross profit of $1,187,500. Management is considering two alternative budget plans to increase its gross profit in 2012. Plan A would increase the selling price per unit from $7.00 to $7.60. Sales volume would decrease by 10% from its 2008 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 2011, Litwin has 70,000 units on hand. If Plan A is accepted, the 2012 ending inventory should be equal to 90,000 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 labor, and $0.50 in variable overhead. The fixed overhead for 2009 should be $975,000. Instructions: a. Prepare a sales budget for 2012 under (1) Plan A and (2) Plan B. b. Prepare a production budget for 2012 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.) Part III Medico Medical Supply Company uses flexible budgets that are based on the following data: Sales commissions 5% of sales Advertising expense 12% of sales Miscellaneous selling expense $2,000 plus 3% of sales Office salaries expense $8,000 per month Office supplies expense 2% of sales Miscellaneous administrative expense $500 per month plus 1% of sales Instructions: Prepare a flexible selling and administrative expenses budget for May 2011, for sales volumes of $120,000, $160,000, and $200,000. Case P Part I Mercer Inc. is preparing its annual budgets for the year ending December 31, 201X. Accounting assistants furnish the following data. Product Product LN35 LN40 Sales budget: Anticipated volume in units 300,000 180,000 Unit selling price $20 $30 Production budget: Desired ending finished goods units 30,000 25,000 Beginning finished goods units 20,000 15,000 Direct materials budget: Direct materials per unit (pounds) 2 3 Desired ending direct materials pounds 50,000 20,000 Beginning direct materials pounds 40,000 10,000 Cost per pound $2 $3 Direct labor budget: Direct labor time per unit 0.5 0.75 Direct labor rate per hour $12 $12 Budgeted income statement: Total unit cost $11 $20 An accounting assistant has prepared the detailed manufacturing overhead budget and the selling and administrative expense budget. The latter shows selling expenses of $560,000 for product LN35 and $440,000 for product LN40, and administrative expenses of $420,000 for product LN35 and $380,000 for product LN40. Income taxes are expected to be 30%. Prepare the following budgets for the year. Show data for each product. Quarterly budgets should not be prepared. A. Sales d. Direct labor B. Production e. Income statement (Note: Income taxes are not C. Direct materials allocated to the products.) Part II Litwin Industries has sales in 2011 of $4,900,000 (700,000 units) and gross profit of $1,187,500. Management is considering two alternative budget plans to increase its gross profit in 2012. Plan A would increase the selling price per unit from $7.00 to $7.60. Sales volume would decrease by 10% from its 2008 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 2011, Litwin has 70,000 units on hand. If Plan A is accepted, the 2012 ending inventory should be equal to 90,000 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 labor, and $0.50 in variable overhead. The fixed overhead for 2009 should be $975,000. Instructions: a. Prepare a sales budget for 2012 under (1) Plan A and (2) Plan B. b. Prepare a production budget for 2012 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.) Part III Medico Medical Supply Company uses flexible budgets that are based on the following data: Sales commissions 5% of sales Advertising expense 12% of sales Miscellaneous selling expense $2,000 plus 3% of sales Office salaries expense $8,000 per month Office supplies expense 2% of sales Miscellaneous administrative expense $500 per month plus 1% of sales Instructions: Prepare a flexible selling and administrative expenses budget for May 2011, for sales volumes of $120,000, $160,000, and $200,000