Coronado Industries had sales in 2021 of $5,698,400 and gross profit of $921,800. Management is considering two alternative budget plans to increase its gross profit in 2022. Plan A would increase the unit selling price from $8.00 to $8.40. Sales volume would decrease by 104,750 units from its 2021 level. Plan B would decrease the unit selling price by $0.50. The marketing department expects that the sales volume would increase by 108,940 units. At the end of 2021, Coronado has 33,520 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 29,330 units. If Plan B is accepted, the ending inventory should be equal to 50,280 units. Each unit produced will cost $1.5 in direct labor, $1.3 in direct materials, and $1.2 in variable overhead. The fixed overhead for 2022 should be $1,588,010. Prepare a production budget for 2022 under each plan.
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.
Coronado Industries had sales in 2021 of $5,698,400 and gross profit of $921,800. Management is considering two alternative budget plans to increase its gross profit in 2022.
Plan A would increase the unit selling price from $8.00 to $8.40. Sales volume would decrease by 104,750 units from its 2021 level. Plan B would decrease the unit selling price by $0.50. The marketing department expects that the sales volume would increase by 108,940 units.
At the end of 2021, Coronado has 33,520 units of inventory on hand. If Plan A is accepted, the 2022 ending inventory should be 29,330 units. If Plan B is accepted, the ending inventory should be equal to 50,280 units. Each unit produced will cost $1.5 in direct labor, $1.3 in direct materials, and $1.2 in variable overhead. The fixed overhead for 2022 should be $1,588,010. Prepare a production budget for 2022 under each plan.
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