30 points eBook E References Exercise 10-34 (Algo) Budgeting for Marketing Expenses; Strategy [LO 10-2, 10-4,10-5] You have been recruited by a former classmate, Susanna Wu, tojoin the finance team ofa company that she founded recently. The company produces a unique product line of hypoallergenic cosmetics and relies for its success on an aggressive marketing program. The company is in a startup phase and therefore has no significant history of expenses and revenues upon which to rely for budgeting and planning purposes. Given the restriction on available funds (most of the available capital has been used for new product development and to recruit a management team], the control of costs, including marketing costs, is thought by the management team to be essential for the shortterm viability ofthe company. You have held a number of intensive discussions with Susanna and John Thompson. director of marketing for the firm. They have asked you to prepare an estimated budget for marketing expenses for a month of operations. You are provided with the following data. which represent average actual monthly costs over the past three months: Cost Amount Sales commissions $ 128,066 Sales staff salaries 45,256 Telephone and mailing 43,769 Rentaloffice building 22,469 Gas (utilities) 12,599 Delivery charges 23,199 Depreciationoffice furniture 9,569 Marketing consultants 26,366 Your discussions with John and Susanna indicate the following assumptions and anticipated changes regarding monthly marketing expenses forthe coming year: . Sales volume. because of aggressive marketing. should increase by 12%. . To meet competitive pressures, sales prices are expected to decrease by 6%. . Sales commissions are based on a percentage of sales revenue. . Sales staff salaries, because ofa new hire. will increase by 12%, regardless of sales volume. . Because of recent industrywide factors. rates for telephone and mailing costs, as well as delivery charges. are expected to increase by 9%. However. both ofthese categories of costs are variable with sales volume. . Rent on the office building is based on a 2year lease, with 19 months remaining on the original lease. . Gas utility costs are largely independent of changes in sales volume. However, because ofindustrywide disruptions in supply. these costs are expected to increase by 17%, regardless of changes in sales volume. . Depreciation on the ofce furniture used by members ofthe sales staff should increase because of new equipmentthat will be acquired. The planned cost forthis equipment is $28,800. which will be depreciated using the straightline {8L} method, with no salvage value, over a 4year useful life. . Because of competitive pressure, the company plans to increase the cost of marketing consultants by $4,500 per month. Required: 1. Based on the preceding information. what is the percentage change. by line item and in total, for items in your budget? 2. The management team is worried about the short-term financial position ofthe new company. Given the strain on available cash, the president has expressed a desire to keep marketing expenses over the next fem.r months to a maximum of $363,000. Discussions with the marketing department indicate that telephone and mailing costs are the only category, in the short run, that can reasonably bear the plannedfor reduction in marketing costs. The budget you have prepared includes an assumed 9% increase in telephone and mailing costs. What must this percentage change {positive or negative} be in order to achieve targeted monthly marketing costs? (Him: The Goal Seek function in Excel can be used to calculate the percentage changes, which can be found under Data, then What-If Analysis.) Complete this question by entering your answers in the tabs below. Required 1 Required 2 Based on the preceding information, Iwhat is the percentage change, by line item and in total, for items in your budget? {Round percentage answers to 2 decimal places. i.e. 0.1234 should be considered as 12.34%.) Sales commissions Sales staffs salaries Te le pone and mailing Rentalsales of ce building Gas (utilities) Delivery eh arg es Depreciationace furniture: Existing furniture New furniture Marketing consultants Total budgeted costs Required 2 > Complete this question by entering your answers in the tabs below. Required 1 Required 2 The management team is worded about the shortterm nancial position of the new company. Given the strain on available cash, the president has expressed a desire to keep marketing expenses over the next few months to a maximum of $363,000. Discussions with the marketing department indicate that telephone and mailing costs are the only category, in the short run, that can reasonably bear the plannedfor reduction in marketing costs. The budget you have prepared includes an assumed 9% increase in telephone and mailing costs. What must this percentage change (positive or negative] be in order to achieve targeted monthly marketing costs? (Hint: The Goal Seek function in Excel can be used to calculate the percentage changes,r which can be found under Data, then WhatIf analysis.) {Negative amounts should be indicated by a minus sign. Round percentage answers to 2 decimal places. i.e. 0.123 should be considered as 12.30%} Show less; Sales commissions Sales staffs salaries Telepone and mailing Rentalsales ofce building Gas (utilities) Delivery charges Depreciationofce furniture: Existing furniture NEW furniture Marketing consultants Total budgeted costs ( Required 1