Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,590 for the Sleepeze, 11,810 for the Plushette, and 4,760 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office (including himself at $66,750, a marketing research assistant at $39,100, and an administrative assistant at $22,500) are budgeted for $128,350 next year.

Depreciation on the offices and equipment is $21,700 per year.

Office supplies and other expenses total $22,900 per year.

Advertising has been steady at $21,400 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 20 percent of first-year Ultima sales for a print and television campaign.

Commissions on the Sleepeze and Plushette lines are 3 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 $55 per unit sold. Gene expects the Ultima line to ship for $75 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	$188	12,750		$208	15,590		$208	18,370
Plushette	293	10,130		347	11,810		361	14,510
Ultima	850	2,150		980	4,760		1,160	4,760

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

Researchresearching current and future conditions in the industry

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

Jobberscoordinating the efforts of the independent jobbers who sell the mattresses

Basic adsplacing print and television ads for the Sleepeze and Plushette lines

Ultima adschoosing and working with the advertising agency on the Ultima account

Office managementoperating 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	25	%	-		15	%
Jobbers	15		10		25
Basic ads	-		20		40
Ultima ads	25		-		10
Office management	35		-		10

Additional information is as follows:

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

Of the $22,900 for office supplies and other expenses, $4,900 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 (80 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:
SalariesTelephoneShip SleepezeCommissionsAdvertising	$- Select -
Internet connectionsTelephoneShip SleepezeCommissionsAdvertising	- Select -	$- Select -
Shipping:
CommissionsAdvertisingDepreciationOffice SuppliesSalaries	$- Select -
CommissionsAdvertisingDepreciationOffice SuppliesTelephone	- Select -
CommissionsAdvertisingDepreciationOffice SuppliesShip Sleepeze	- Select -
CommissionsAdvertisingDepreciationOffice SuppliesShip Plushette	- Select -
CommissionsAdvertisingDepreciationOffice SuppliesShip Ultima	- Select -	- Select -
Jobbers:
DepreciationOffice SuppliesShip SleepezeSalariesShip Ultima	$- Select -
DepreciationOffice SuppliesShip SleepezeTelephoneShip Ultima	- Select -
DepreciationOffice SuppliesShip SleepezeCommissionsShip Ultima	- Select -	- Select -
Basic ads:
DepreciationOffice SuppliesShip SleepezeShip UltimaSalaries	$- Select -
DepreciationOffice SuppliesShip SleepezeShip UltimaAdvertising	- Select -	- Select -
Ultima ads:
DepreciationOffice SuppliesShip SleepezeShip UltimaSalaries	$- Select -
DepreciationOffice SuppliesShip SleepezeShip UltimaAdvertising	- Select -	- Select -
Office management:
SalariesInternet connectionsAdvertisingShip Ultima	$- Select -
DepreciationSalariesInternet connectionsAdvertisingShip Ultima	- Select -
Ship SleepezeSalariesInternet connectionsOffice SuppliesShip Ultima	- Select -	- Select -
Total			$fill in the blank bff174096045ff8_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.

Gene should focus on the most costly activities: salaries, Ultima advertising and commissions to jobbers.Gene should focus on the most costly activities: shipping, basic advertising and commissions to jobbers.Gene should focus on the most costly activities: shipping, Ultima advertising and commissions to jobbers.