You have been recruited by a former classmate, Susanna Wu, to join the finance team of a company that she founded recently. The company produces a unique product line of hypoallergenic cosmetics and relies for its success on an aggressive marketing program.

The company is in a start-up phase and therefore has no significant history of expenses and revenues upon which to rely for

budgeting and planning purposes. Given the restriction on available funds (most of the available capital has been used for new-

product development and to recruit a management team), the control of costs, including marketing costs, is thought by the

management team to be essential for the short-term viability of the company.

You have held a number of intensive discussions with Susanna and John Thompson, director of marketing for the firm. They have asked you to prepare an estimated budget for marketing expenses for a month of operations.

You are provided with the following data, which represent average actual monthly costs over the past three months:

Cost

Sales commissions

Sales staff salaries

Telephone and mailing

Rental-office building

as

(utilities)

Delivery charges

Depreciation-office furniture

Marketing consultants

Amount

$ 119,000

40,750

41,900

27,200

10, 700

70,100

16,500

26,900

Your discussions with John and Susanna indicate the following assumptions and anticipated changes regarding monthly marketing

expenses for the coming year.

Sales volume, because of aggressive marketing, should increase by 14%.

To meet competitive pressures, sales prices are expected to decrease by 7%.

Sales commissions are based on a percentage of sales revenue.

Sales staff salaries, because of a new hire, will increase by 14%, regardless of sales volume.

Because of recent industrywide factors, rates for telephone and mailing costs, as well as delivery charges, are expected to increase by 8%. However, both of these categories of costs are variable with sales volume.

Rent on the office building is based on a 2-year lease, with 21 months remaining on the original lease.

Gas utility costs are largely independent of changes in sales volume. However, because of industrywide disruptions in supply, these costs are expected to increase by 16%, regardless of changes in sales volume.

Depreciation on the office furniture used by members of the sales staff should increase because of new equipment that will be acquired. The planned cost for this equipment is $57,600, which will be depreciated using the straight-line (SL) method, with no salvage value, over a 6-year useful life.

Because of competitive pressure, the company plans to increase the cost of marketing consultants by $7,500 per month.

Required:

Based on the preceding information, what is the percentage change, by line item and in total, for items in your budget?

The management team is worried about the short-term financial position of the new company. Given the strain on available cash, the president has expressed a desire to keep marketing expenses over the next few months to a maximum of $357,000. Discussions with the marketing department indicate that telephone and mailing costs are the only category, in the short run, that can reasonably bear