Carla Vista Industries had sales in 2021 of $6,528,000 and gross profit of $1,056,000. 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 120,000 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 124,800 units. At the end of 2021, Carla Vista has 40,000 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 36,000 units. If Plan B is accepted, the ending inventory should be equal to 64,000 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 $1,820,000.
Carla Vista Industries had sales in 2021 of $6,528,000 and gross profit of $1,056,000. 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 120,000 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 124,800 units. At the end of 2021, Carla Vista has 40,000 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 36,000 units. If Plan B is accepted, the ending inventory should be equal to 64,000 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 $1,820,000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:### Computing Production Costs: A Cost Analysis Exercise
#### Question (c1)
**Task:**
Compute the production cost per unit under each plan. **(Round answers to 2 decimal places, e.g., 1.25.)**
**Response:**
- Plan A:
- **Production cost per unit:** \$4.00
- Plan B:
- **Production cost per unit:** \$4.00
**Submission Status:**
- Your answer is incorrect.
**Attempts:**
- Attempts 1 of 2 used.
**Note:**
*Using multiple attempts will impact your score. A 25% score reduction applies after attempt 1.*
**Buttons:**
- **Save for Later:** Allows you to save your current progress and return to it later.
- **Submit Answer:** Click this button to submit your answer for evaluation.
For detailed explanations, strategies for computing production costs, and further practice problems, continue exploring our interactive modules.
Transcribed Image Text:### Budget Planning for Carla Vista Industries
#### Examining Alternative Budget Plans for Increasing Gross Profit
**Company Overview for 2021:**
- **Sales:** $6,528,000
- **Gross Profit:** $1,056,000
**Objective:**
Management is considering two alternative budget plans to boost gross profit in 2022.
### Budget Plans:
**1. Plan A:**
- **Selling Price Increase:** From $8.00 to $8.40 per unit
- **Expected Sales Volume Decrease:** 120,000 units compared to 2021
**2. Plan B:**
- **Selling Price Decrease:** By $0.50 per unit from its 2021 level
- **Expected Sales Volume Increase:** By 124,800 units
### Inventory Considerations:
- **Current Inventory (end of 2021):** 40,000 units
- **Expected 2022 Ending Inventory (Plan A):** 36,000 units
- **Expected 2022 Ending Inventory (Plan B):** 64,000 units
### Production Cost Breakdown:
- **Direct Labor per Unit:** $1.50
- **Direct Materials per Unit:** $1.30
- **Variable Overhead per Unit:** $1.20
- **Fixed Overhead for 2022:** $1,820,000
### Task:
To prepare a sales budget for 2022 considering each proposed plan, taking into account the unit price adjustments and expected inventory changes.
**Instructions:**
- Round unit selling price answers to 2 decimal places (e.g., $52.70).
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This educational content aims to guide students through the process of evaluating different budget strategies and their potential impacts on sales volume and overall profitability.
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Part D of this question asks what the gross profit would be for each plan. I am having trouble computing. Can you show how to calculate gross profit under Plan A and Plan B?
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