Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,550 for the Sleepeze, 12,530 for the Plushette, and 5,350 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $64,100, a marketing research assistant at $37,150, and an administrative assistant at $27,000) are budgeted for $128,250 next year.
2. Depreciation on the offices and equipment is $17,550 per year.
3. Office supplies and other expenses total $20,150 per year.
4. Advertising has been steady at $17,000 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.
5. Commissions on the Sleepeze and Plushette lines are 4 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 $45 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	$186	12,040	$206	15,550	$206	17,700
Plushette	303	9,960	360	12,530	372	14,090
Ultima	910	2,100	1,000	5,350	1,230	5,350

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	-	75	%	-
Shipping	25	%	-	15	%
Jobbers	20	10	25
Basic ads	-	15	30
Ultima ads	25	-	10
Office management	30	-	20

Additional information is as follows:

1. Depreciation on the office equipment belongs to the office management activity.
2. Of the $20,150 for office supplies and other expenses, $5,500 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $3,000 per year is attributable to Internet connections and fees, and the bulk of these costs (75 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:

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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:
Salaries Telephone Ship Sleepeze Commissions Advertising Correct 5 of Item 1	$ Correct 6 of Item 1
Internet connections Telephone Ship Sleepeze Commissions Advertising Correct 7 of Item 1	Correct 8 of Item 1	$ Correct 9 of Item 1
Shipping:
Commissions Advertising Depreciation Office Supplies Salaries Correct 11 of Item 1	$ Correct 12 of Item 1
Commissions Advertising Depreciation Office Supplies Telephone Correct 13 of Item 1	Correct 14 of Item 1
Commissions Advertising Depreciation Office Supplies Ship Sleepeze Correct 15 of Item 1	Correct 16 of Item 1
Commissions Advertising Depreciation Office Supplies Ship Plushette Correct 17 of Item 1	Correct 18 of Item 1
Commissions Advertising Depreciation Office Supplies Ship Ultima Correct 19 of Item 1	Correct 20 of Item 1	Correct 21 of Item 1
Jobbers:
Depreciation Office Supplies Ship Sleepeze Salaries Ship Ultima Correct 23 of Item 1	$ Correct 24 of Item 1
Depreciation Office Supplies Ship Sleepeze Telephone Ship Ultima Correct 25 of Item 1	Correct 26 of Item 1
Depreciation Office Supplies Ship Sleepeze Commissions Ship Ultima Correct 27 of Item 1	Correct 28 of Item 1	Correct 29 of Item 1
Basic ads:
Depreciation Office Supplies Ship Sleepeze Ship Ultima Salaries Correct 31 of Item 1	$ Correct 32 of Item 1
Depreciation Office Supplies Ship Sleepeze Ship Ultima Advertising Correct 33 of Item 1	Correct 34 of Item 1	Correct 35 of Item 1
Ultima ads:
Depreciation Office Supplies Ship Sleepeze Ship Ultima Salaries Correct 37 of Item 1	$ Correct 38 of Item 1
Depreciation Office Supplies Ship Sleepeze Ship Ultima Advertising Correct 39 of Item 1	Correct 40 of Item 1	Correct 41 of Item 1
Office management:
Salaries Internet connections Advertising Ship Ultima Correct 43 of Item 1	$ Correct 44 of Item 1
Depreciation Salaries Internet connections Advertising Ship Ultima Correct 45 of Item 1	Correct 46 of Item 1
Ship Sleepeze Salaries Internet connections Office Supplies Ship Ultima Correct 47 of Item 1	Correct 48 of Item 1	Correct 49 of Item 1
Total	$ Correct 51 of Item 1

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

- Select your answer -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.Correct 1 of Item 2