Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 14,910 for the Sleepeze, 12,380 for the Plushette, and 4,990 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $65,400, a marketing research assistant at $37,450, and an administrative assistant at $26,250) are budgeted for $129,100 next year.
2. Depreciation on the offices and equipment is $20,250 per year.
3. Office supplies and other expenses total $21,400 per year.
4. Advertising has been steady at $18,150 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 5 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	$182	12,800		$197	14,910		$197	17,570
Plushette	300	10,210		340	12,380		349	14,040
Ultima	910	2,010		1,010	4,990		1,230	4,990

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	%	-		15	%
Jobbers	20		10		25
Basic ads	-		15		35
Ultima ads	25		-		5
Office management	25		-		20

Additional information is as follows:

1. Depreciation on the office equipment belongs to the office management activity.
2. Of the $21,400 for office supplies and other expenses, $5,000 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $2,600 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.

Activity-Based Budget Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 14,910 for the Sleepeze, 12,380 for the Plushette, and 4,990 for the Ultima. Gene Dixon, vice president of sales, has provided the following information: a. Salaries for his office (including himself at $65,400, a marketing research assistant at $37,450, and an administrative assistant at $26,250) are budgeted for $129,100 next year. b. Depreciation on the offices and equipment is $20,250 per year. c. Office supplies and other expenses total $21,400 per year. d. Advertising has been steady at $18,150 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. e. 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. f. 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: Sleepeze Plushette Ultima Pessimistic Price Quantity $182 12,800 300 10,210 910 2,010 Expected Price Quantity $197 14,910 340 12,380 1,010 4,990 Optimistic Price Quantity $197 17,570 349 14,040 1,230 4,990 Suppose Gene determines that next year's Sales Division activities include the following: Research-researching current and future conditions in the industry Shipping-arranging for shipping of mattresses and handling calls from purchasing agents at retail stores to trace shipments and correct errors Jobbers-coordinating the efforts of the independent jobbers who sell the mattresses Basic ads-placing print and television ads for the Sleepeze and Plushette lines Ultima ads-choosing and working with the advertising agency on the Ultima account Office management-operating 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: Administrative Assistant Research Shipping Jobbers Research Gene Assistant 75% 30% - 2010 15% Basic ads Ultima ads Office management Additional information is as follows: a. Depreciation on the office equipment belongs to the office management activity. b. Of the $21,400 for office supplies and other expenses, $5,000 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $2,600 per year is attributable to Internet connections and fees, Office management 25 - 20 Additional information is as follows: a. Depreciation on the office equipment belongs to the office management activity. b. Of the $21,400 for office supplies and other expenses, $5,000 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $2,600 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: QIQI.1 200 00 00 000 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. Office management 25 20 Additional information is as follows: a. Depreciation on the office equipment belongs to the office management activity. b. Of the $21,400 for office supplies and other expenses, $5,000 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. An additional $2,600 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: QI QUIIl Q1 00 00 QUI Basic ads: Ultima ads: Office management: Total 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. vertising and commissions to jobbers. taken to reduce Gene should focus on the most costly activities: shipping, Ultima advertising and commissions to jobbers