1. Activity-Based Budget

   Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,200 for the Sleepeze, 12,480 for the Plushette, and 4,930 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

   1. Salaries for his office (including himself at $67,800, a marketing research assistant at $35,300, and an administrative assistant at $27,950) are budgeted for $131,050 next year.
   2. Depreciation on the offices and equipment is $19,800 per year.
   3. Office supplies and other expenses total $23,350 per year.
   4. Advertising has been steady at $19,750 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 15 percent of first-year Ultima sales for a print and television campaign.
   5. Commissions on the Sleepeze and Plushette lines are 6 percent of sales. These commissions are paid to independent jobbers who sell the mattresses to retail stores.
   6. Last year, shipping for the Sleepeze and Plushette lines averaged $50 per unit sold. Gene expects the Ultima line to ship for $80 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	$178	12,170		$202	15,200		$202	17,820
   Plushette	299	9,890		339	12,480		351	14,090
   Ultima	860	2,000		980	4,930		1,150	4,930

   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	30	%	-		15	%
   Jobbers	15		15		25
   Basic ads	-		15		40
   Ultima ads	30		-		5
   Office management	25		-		15

   Additional information is as follows:

   1. Depreciation on the office equipment belongs to the office management activity.
   2. Of the $23,350 for office supplies and other expenses, $5,400 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:

   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:
   	$
   		$
   Shipping:
   	$
   Jobbers:
   	$
   Basic ads:
   	$
   Ultima ads:
   	$
   Office management:
   	$
   Total			$

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

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