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8 February, 00:01

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

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  1. 8 February, 00:11
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    Budgeted sales for 2016 is $982,800 (145,600 units)

    Cost of goods sold: $582,400

    Gross margin: $400,400

    Operating expenses: $260,000 (fixed cost and remained constant)

    Operating income: $140,400

    Explanation:

    In 2015:

    Selling prices = $960,000/160,000 = $6

    Cost of goods sold per unit = $640,000/160,000 = $4

    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%.

    Selling prices = $6 x (1 + 12.5%) = $6.75

    Sales volume = 160,000 x (1-9%) = 145,600 units

    Total sales = 145,600 x $6.75 = $982,800

    Cost of goods sold = 145,600 x $4 = $582,400

    Gross margin = $982,800 - $582,400 = $400,400

    Operating expenses $260,000 (fixed cost and remained constant)

    Operating income = Total sales - Cost of goods sold - Operating expenses = $982,800 - $582,400 - $260,000 = $140,400
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