Cornerstones of Cost Management 2nd Edition by Don Hansen ,Maryanne Mowen

Exercise 58

Sales Forecast and Flexible Budget
Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,000 for the Sleepeze, 12,000 for the Plushette, and 5,000 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:
a. Salaries for his office (including himself at $65,000, a marketing research assistant at $40,000, and an administrative assistant at $25,000) are budgeted for $130,000 next year.
b. Depreciation on the offices and equipment is $20,000 per year.
c. Office supplies and other expenses total $21,000 per year.
d. Advertising has been steady at $20,000 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.
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 $50 per unit sold. Gene expects the Ultima line to ship for $75 per unit sold since this model features a larger mattress.
Required:
1. Suppose that Gene is considering three sales scenarios as follows:

Prepare a revenue budget for the Sales Division for the coming year for each scenario.
2. Prepare a flexible expense budget for the Sales Division for the three scenarios above.