54. (Budget-to-actual comparison) Lighting Systems, Inc., evaluates performance in part through the use of flexible budgets. Selling expense budgets at three activity levels within the relevant range are shown below.

ACTIVITY MEASURES Unit sales volume 15,000 17,500 20,000 Dollar sales volume $15,000,000 $17,500,000 $20,000,000 Number of orders processed 1,500 1,750 2,000 Number of salespersons 100 100 100 MONTHLY EXPENSES Advertising and promotion $ 1,500,000 $ 1,500,000 $ 1,500,000 Administrative salaries 75,000 75,000 75,000 Sales salaries 90,000 90,000 90,000 Sales commissions 450,000 525,000 600,000 Salesperson travel 200,000 225,000 250,000 Sales office expense 445,000 452,500 460,000 Shipping expense 650,000 675,000 700,000 Total $ 3,410,000 $ 3,542,500 $ 3,675,000 The following assumptions were used to develop the selling expense flexible budgets:

• The average size of the company’s sales force during the year was planned to be 100 people.

• Salespersons are paid a monthly salary plus commission on gross dollar sales.

• The travel costs have both a fixed and a variable element. The fixed portion is related to the number of salespersons, whereas the variable portion tends to fluctuate with gross dollars of sales.

• Sales office expense is a mixed cost with the variable portion related to the number of orders processed.
• Shipping expense is a mixed cost with the variable portion related to the number of units sold. (An order consists of 10 units.)
A sales force of 90 persons generated a total of 1,600 orders, resulting in a sales volume of 16,000 units during November. The gross dollar sales amounted to $14.9 million. The selling expenses incurred for November were as follows:
Advertising and promotion $1,450,000 Administrative salaries 80,000 Sales salaries 92,000 Sales commissions 460,000 Salesperson travel 185,000 Sales office expense 500,000 Shipping expense 640,000 Total $3,407,000

a. Explain why the selling expense flexible budget would not be appropriate for evaluating the company’s November selling expense, and indicate how the flexible budget would have to be revised.

b. Determine the budgeted variable cost per salesperson and variable cost per sales order for the company.

c. Prepare a selling expense report for November that the company can use to evaluate its control over selling expenses. The report should have a line for each selling expense item showing the appropriate budgeted amount, the actual selling expense, and the monthly dollar variation.

d. Determine the actual variable cost per salesperson and variable cost per sales order processed for the company.

e. Comment on the effectiveness and efficiency of the salespersons during November. (CMA adapted)