Rerun Manufacturing Company is in the process of preparing its 2016 budget and is anticipating the following changes: 30% increase in the number of units sold.20% increase in the direct material unit cost.15% increase in the direct labor cost per unit.10% increase in the manufacturing overhead cost per unit.14% increase in the marketing price.7% increase in the administrative expenses.Rerun does not keep any units in inventory.The composition of the cost of finished products during 2016 for materials,direct labor,and factory overhead,respectively,was in the ratio of 3:2:1.The condensed income statement for 2016 is as follows:$$\begin{array} { | l | r | r | }
\hline \text { Sales } ( 30,000 \text { units } ) & \$ 460,000 & \
\hline \text { Less sales returns } & \underline{13,500 }& \
\hline \text { Net sales } & 436,500 & \
\hline \text { Cost of Goods Sold } &\underline{ 306,000} & \
\hline \text { Gross Profit } & & \$ 130,500 \
\hline \text { Selling Expenses } & \$ 60,000 & \
\hline \text { Admin. Expenses } & 30,000 & 90,000 \
\hline \text { Net Income } & & \underline{\$ 40,500 }\
\hline
\end{array}$$
What are estimated net sales for 2016,assuming the sales return/gross sales relationship remains constant?

Question

Rerun Manufacturing Company is in the process of preparing its 2016 budget and is anticipating the following changes: 30% increase in the number of units sold.20% increase in the direct material unit cost.15% increase in the direct labor cost per unit.10% increase in the manufacturing overhead cost per unit.14% increase in the marketing price.7% increase in the administrative expenses.Rerun does not keep any units in inventory.The composition of the cost of finished products during 2016 for materials,direct labor,and factory overhead,respectively,was in the ratio of 3:2:1.The condensed income statement for 2016 is as follows:$$\begin{array} { | l | r | r | } 
\hline \text { Sales } ( 30,000 \text { units } ) & \$ 460,000 & \
\hline \text { Less sales returns } & \underline{13,500 }& \
\hline \text { Net sales } & 436,500 & \
\hline \text { Cost of Goods Sold } &\underline{ 306,000} & \
\hline \text { Gross Profit } & & \$ 130,500 \
\hline \text { Selling Expenses } & \$ 60,000 & \
\hline \text { Admin. Expenses } & 30,000 & 90,000 \
\hline \text { Net Income } & & \underline{\$ 40,500 }\
\hline
\end{array}$$
What are estimated net sales for 2016,assuming the sales return/gross sales relationship remains constant?

Quizplus · Accepted Answer

The correct answer is A.The estimated net sales for 2016, assuming the sales return/gross sales relationship remains constant, can be calculated as follows:Net sales = (Number of units sold * Sales price per unit) - Sales returnsNumber of units sold = 30,000 units * 1.30 = 39,000 unitsSales price per unit = $460,000 / 30,000 units = $15.33 per unitSales returns = $13,500 * 1.30 = $17,550Net sales = (39,000 units * $15.33 per unit) - $17,550 = $646,893

Rerun Manufacturing Company Is in the Process of Preparing Its