The Marketing Director of W Limited is dissatisfied with the variances reported to him on the basis of actual costs being compared with a fixed budget for the costs attributed to the marketing function. He seeks your help and asks you to prepare for him a flexible budget for the calendar year 19_7, based on the following information which is stated for an estimated sales level of £10 million unless stated otherwise.

Semi-variable costs:
Telephone rentals £2 000, metered calls £14 000; Sales representatives’ car expenses excluding depreciation: fixed £7 000, variable £48 000 Sales promotions: the budget figures are to be based on the costs given below which relate to the years 19_2 to 19_5 and the estimates for 1986

Ignore Inflation Required:

(a) prepare a flexible budget for sales levels of £9m., £10m., and £11.5 m.; (12 marks)

(b) calculate the total marketing cost allowance, assuming sales of £10.75 m.

Transcribed Image Text:

Fixed costs: Salaries-Sales representatives Sales office Salary-related costs Rent Depreciation of furniture Depreciation of cars Insurance Advertising Variable costs: Sales representatives' commission Salary-related costs-12% of commission Sales representatives' ordinary expenses Bad debts Stationery and postage Agency fees 000 200 60 32 100 5 67 20 250 64 8 25 100 50 80