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Kramer Enterprises reports year-end information from 2015 as follows: Sales (160,000 units) $960,000 Cost of goods sold 640,000 Gross margin 320,000 Operating expenses 260,000 Operating income $60,000 Kramer is developing the 2016 budget
Kramer Enterprises reports year-end information from 2015 as follows:
Sales (160,000 units) $960,000
Cost of goods sold 640,000
Gross margin 320,000
Operating expenses 260,000
Operating income $60,000
Kramer is developing the 2016 budget. In 2016 the company would like to increase selling prices by 12.5%, and as a result expects a decrease in sales volume of 9%. All other operating expenses are expected to remain constant. Assume that cost of goods sold is a variable cost and that operating expenses are a fixed cost.
What is budgeted sales for 2016?
Expert Solution
Computation of the budgeted sales for 2016:-
Selling price per unit = Sales / Number of units sold
= $960,000 / 160,000
= $6 per units
New selling price = $6 * (1 + 12.5%)
= $6.75
New sales volume = Number of units sold * (1 - Decrease in sales volume)
= 160,000 * (1 - 9%)
= 145,600 units
Budgeted sales = New sales volume * New selling price
= 145,600 * $6.75
= $982,800
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