Activity$-$Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are $14,910$ for the Sleepeze, $12,650$ for the Plushette, and $4,510$ for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office $($including himself at $$66,950,$ a marketing research assistant at $$43,550,$ and an administrative assistant at $$27,850)$ are budgeted for $$138,350$ next year.

Depreciation on the offices and equipment is $$18,350$ per year.

Office supplies and other expenses total $$18,800$ per year.

Advertising has been steady at $$20,500$ per year. However, the Ultima is a new product and will require extensive advertising to educate consumers on the unique features of this high$-$end mattress. Gene believes the company should spend $10$ percent of first$-$year Ultima sales for a print and television campaign.

Commissions on the Sleepeze and Plushette lines are $5$ percent of sales. These commissions are paid to independent jobbers who sell the mattresses to retail stores.

Last year, shipping for the Sleepeze and Plushette lines averaged $$50$ per unit sold. Gene expects the Ultima line to ship for $$70$ per unit sold since this model features a larger mattress.

Suppose that Gene is considering three sales scenarios as follows:

Pessimistic Expected Optimistic

Price Quantity Price Quantity Price Quantity

Sleepeze $$17812,780$ $$20214,910$ $$20217,530$

Plushette $3079,71036112,65037613,700$

Ultima $9501,8201,0404,5101,2504,510$

Suppose Gene determines that next year's Sales Division activities include the following:

Research$$researching current and future conditions in the industry

Shipping$$arranging for shipping of mattresses and handling calls from purchasing agents at retail stores to trace shipments and correct errors

Jobbers$$coordinating the efforts of the independent jobbers who sell the mattresses

Basic ads$$placing print and television ads for the Sleepeze and Plushette lines

Ultima ads$$choosing and working with the advertising agency on the Ultima account

Office management$$operating the Sales Division office

The percentage of time spent by each employee of the Sales Division on each of the above activities is given in the following table:

Gene Research

Assistant Administrative

Assistant

Research $-70\%-$

Shipping $30\%-20\%$

Jobbers $151520$

Basic ads $-1535$

Ultima ads $25-10$

Office management $30-15$

Additional information is as follows:

Depreciation on the office equipment belongs to the office management activity.

Of the $$18,800$ for office supplies and other expenses, $$4,500$ can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $$2,400$ per year is attributable to Internet connections and fees, and the bulk of these costs $(70$ percent$)$ are assignable to research. The remainder is a cost of office management. All other office supplies and costs are assigned to the office management activity.

Required:

Question Content Area

$1.$ Prepare an activity$-$based budget for next year by activity. Use the expected level of sales activity. If required, round answers to the nearest dollar.

Olympus, Inc.

Activity$-$Based Budget

For Next Year

Research:

$$-$ Select $-$

$-$ Select $-$

$$-$ Select $-$

Shipping:

$$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

Jobbers:

$$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

Basic ads:

$$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

Ultima ads:

$$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

Office management:

$$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

$-$ Select $-$

Total $fill in the blank a$488$a$7$f$6302$b$048\_41$

Question Content Area

$2.$ On the basis of the budget prepared in Requirement $1,$ advise Gene regarding actions that might be taken to reduce expenses.