You have been recrulted 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 relles for its success on an aggresslve 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. Glven the restriction on avallable funds (most of the avallable capital has been used for newproduct 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 vability of the company. You have held a number of Intenslve 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 wth the foliowing data, which represent average actual monthly costs over the past three months: 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 aggresslve marketing, should Increase by 18%. - To meet compettive pressures, sales prices are expected to decrease by 9%. - Sales commissions are based on a percentage of sales revenue. - Sales staff salaries, because of a new hire, will increase by 18%, regardless of sales volume. - Because of recent Industrywide factors, rates for telephone and malling costs, as well as delivery charges, are expected to increase by 7%. However, both of these categorles of costs are varlable with sales volume. - Rent on the office bulloing 15 based on a 2 -year lease, with 18 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 15%, regardless of changes in sales volume. - Depreclation 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 $43,200, which will be depreclated using the straight-line (SL) method, wilh no salvage value, over a 6 -year useful life. - Because of competitive pressure, the company plans to increase the cost of marketing consultants by $5,000 per month. Based on the preceding information, what is the percentage change, by line item and in total, for items in your budget? (Round percentage answers to 2 decimal places. i,e. 0.1234 should be considered as 12.34%.) 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 $375,000. Discussions with the marketing department indicate that telephone and mailing costs are the only category, in the short run, that can reasonably bear the planned-for reduction in marketing costs. The budget you have prepared includes an assumed 7% increase in telephone and mailing costs. What must this percentage change (positive or negative) be in order to achieve targeted monthly marketing costs? (Hint: The Goal Seek function in Excel can be used to calculate the percentage changes, which can be found under Data, then What-If Analysis, ) (Negative amounts should be indicated by a minus sign. Round percentage answers to 2 decimal places, i.e. 0.123 should be considered as 12.30% )
