24. The Sales Budget and CVP Analysis LO1, 2 CNX Motors is preparing a sales budget for the cur-rent year for the service department. The budget is based on last year’s actual amounts. Management is interested in understanding what might happen if the service department has an increase in sales volume ( i. e., the number of mechanic hours) or an increase in the average revenue per mechanic hour. They believe that, because of economic con-ditions in the local market, it is unlikely that both would increase. Last year’s sales amounts were as follows: Mechanic Hours Total Revenues January 1,174 $ 11,681 February 1,057 10,538 March 1,125 11,261 April 1,516 15,008 May 1,724 16,981 June 2,515 25,014 July 2,746 27,185 August 3,107 30,604 September 2,421 23,823 October 2,211 22,154 November 1,709 17,090 December 1,524 15,125 Required A. Compute the average revenue per mechanic hour for the current year on the basis of last year’s actual data. Round the average hourly rate to the nearest penny. B. Prepare a monthly sales budget for the current year, assuming that monthly sales volume ( i. e., mechanic hours) will be 10 percent greater than it was in the same month last year. Assume that the average revenue per mechanic hour is the same as you computed in question A. Round budgeted hours to one decimal and budgeted revenues to the nearest dollar. C. Prepare a monthly sales budget for the current year, assuming that the average revenue per mechanic hour computed in question A increased by 5 percent. Assume also that the number of mechanic hours stays the same as in the previous year. That is, there is no increase or decrease in the monthly sales volume. Round the rate per mechanic hour to two decimals and budgeted revenues to the nearest dollar. D. For the current year in total, is it more advantageous to increase sales volume by 10 percent or average revenue per hour by 5 percent? Remember the impact of variable and fixed costs on these projections.
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