Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,220 for the Sleepeze, 12,010 for the Plushette, and 4,960 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $65,000, a marketing research assistant at $43,450, and an administrative assistant at $27,450) are budgeted for $135,900 next year.
2. Depreciation on the offices and equipment is $21,250 per year.
3. Office supplies and other expenses total $18,750 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 15 percent of first-year Ultima sales for a print and television campaign.
5. 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.
6. Last year, shipping for the Sleepeze and Plushette lines averaged $45 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	$188	12,680		$207	15,220		$207	18,120
Plushette	292	10,490		335	12,010		343	14,380
Ultima	940	1,800		1,040	4,960		1,230	4,960

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	%	-		25	%
Jobbers	15		15		15
Basic ads	-		10		30
Ultima ads	30		-		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 $18,750 for office supplies and other expenses, $4,800 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $2,000 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:

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	$____
Internet connections	____	$____
Shipping:
Salaries	$_____
Telephone	_____
Ship Sleepeze	____
Ship Plushette	____
Ship Ultima	____	___
Jobbers:
Salaries	$____
Telephone	____
Commissions	___	____
Basic ads:
Salaries	$
Advertising	___	____
Ultima ads:
Salaries	$___
Advertising	___	___
Office management:
Salaries	$
Depreciation	___
Office Supplies	___	___
Total			$____