Mike. Inc has two products A and B. The budgeted fixed manufacturing overhead is $10,000. The department is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume the firm can produce and sell 1,000 units Product A and 1,000 units Product B. Product A Product B Direct Materials $3 $2 Direct Labor $1 $3 Variable Manufacturing Overhead $2 $1 Budgeted labor hours used for each unit product 1 4 Budgeted machine hours used for each unit product 3 1 Sale Demand 1,000 1,000 Product A Product B Required Investment $5,000 $30,000 Required ROI Rate 10.00% 5.00% Unit Variable Selling Expenses $1 $2 Fixed Selling Expenses $2,000 $4,000 Due to the COVID-19 outbreak, the company anticipates a large decrease in sales in 2021. Without preparing income statements, please discuss which product can bring higher net income to the firm and explain why.
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Mike. Inc has two products A and B. The budgeted fixed manufacturing
is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume
the firm can produce and sell 1,000 units Product A and 1,000 units Product B.
Product A Product B
Direct Materials $3 $2
Direct Labor $1 $3
Variable Manufacturing Overhead $2 $1
Budgeted labor hours used for each unit product 1 4
Budgeted machine hours used for each unit product 3 1
Sale Demand 1,000 1,000
Product A Product B
Required Investment $5,000 $30,000
Required
Unit Variable Selling Expenses $1 $2
Fixed Selling Expenses $2,000 $4,000
Due to the COVID-19 outbreak, the company anticipates a large decrease in sales in 2021. Without preparing income statements, please discuss which product can bring higher net income to the firm and explain why.
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