Activity-Based Budget Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,540 for the

Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,540 for the Sleepeze, 12,320 for the Plushette, and 4,700 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office (including himself at $62,800, a marketing research assistant at $42,350, and an administrative assistant at $27,000) are budgeted for $132,150 next year.

Depreciation on the offices and equipment is $18,150 per year.

Office supplies and other expenses total $23,050 per year.

Advertising has been steady at $17,550 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.

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 $55 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	$172	12,510	$194	15,540	$194	17,960
Plushette	308	10,100	367	12,320	382	14,110
Ultima	930	1,910	1,040	4,700	1,250	4,700

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	30	%	-		20	%
Jobbers	20		10		20
Basic ads	-		15		30
Ultima ads	25		-		5
Office management	25		-		25

Additional information is as follows:

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

Of the $23,050 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 $2,700 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.