Activity-Based Budget Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,210 for the Sleepeze, 12,420 for the Plushette, and 4,770 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 $41,200, and an administrative assistant at $23,900) are budgeted for $127,900 next year. Depreciation on the offices and equipment is $18,600 per year. Office supplies and other expenses total $19,550 per year. Advertising has been steady at $18,400 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 20 percent of first-year Ultima sales for a print and television campaign. Commissions on the Sleepeze and Plushette lines are 3 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 $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 $189 12,840 $211 15,210 $211 18,300 Plushette 297 9,520 342 12,420 354 14,230 Ultima 890 1,840 970 4,770 1,180 4,770 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: Gene Research Assistant Administrative Assistant Research - 75 % - Shipping 35 % - 15 % Jobbers 15 10 25 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 $19,550 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 $2,800 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: Question Content Area 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 BudgetFor Next Year Research: $- Select - - Select - $- Select - Shipping: $- Select - - Select - - Select - - Select - - Select - - Select - Jobbers: $- Select - - Select - - Select - - Select - Basic ads: $- Select - - Select - - Select - Ultima ads: $- Select - - Select - - Select - Office management: $- Select - - Select - - Select - - Select - Total $fill in the blank 653d57fdf04bfa1_41 Question Content Area 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 15,210 for the Sleepeze, 12,420 for the Plushette, and 4,770 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 $41,200, and an administrative assistant at $23,900) are budgeted for $127,900 next year. Depreciation on the offices and equipment is $18,600 per year. Office supplies and other expenses total $19,550 per year. Advertising has been steady at $18,400 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 20 percent of first-year Ultima sales for a print and television campaign. Commissions on the Sleepeze and Plushette lines are 3 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 $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 $189 12,840 $211 15,210 $211 18,300 Plushette 297 9,520 342 12,420 354 14,230 Ultima 890 1,840 970 4,770 1,180 4,770 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: Gene Research Assistant Administrative Assistant Research - 75 % - Shipping 35 % - 15 % Jobbers 15 10 25 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 $19,550 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 $2,800 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: Question Content Area 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 BudgetFor Next Year Research: $- Select - - Select - $- Select - Shipping: $- Select - - Select - - Select - - Select - - Select - - Select - Jobbers: $- Select - - Select - - Select - - Select - Basic ads: $- Select - - Select - - Select - Ultima ads: $- Select - - Select - - Select - Office management: $- Select - - Select - - Select - - Select - Total $fill in the blank 653d57fdf04bfa1_41 Question Content Area 2. On the basis of the budget prepared in Requirement 1, advise Gene regarding actions that might be taken to reduce expenses.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 29E: Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima....

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Question

Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,210 for the Sleepeze, 12,420 for the Plushette, and 4,770 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 $41,200, and an administrative assistant at $23,900) are budgeted for $127,900 next year.
Depreciation on the offices and equipment is $18,600 per year.
Office supplies and other expenses total $19,550 per year.
Advertising has been steady at $18,400 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 20 percent of first-year Ultima sales for a print and television campaign.
Commissions on the Sleepeze and Plushette lines are 3 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 $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	$189	12,840		$211	15,210	$211	18,300
Plushette	297	9,520		342	12,420	354	14,230
Ultima	890	1,840		970	4,770	1,180	4,770

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:

	Gene	Research Assistant	Administrative Assistant
Research	-		75	%	-
Shipping	35	%	-		15	%
Jobbers	15		10		25
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 $19,550 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 $2,800 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:

Question Content Area

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 BudgetFor Next Year

Research:
	$- Select -
	- Select -	$- Select -
Shipping:
	$- Select -
	- Select -
	- Select -
	- Select -
	- Select -	- Select -
Jobbers:
	$- Select -
	- Select -
	- Select -	- Select -
Basic ads:
	$- Select -
	- Select -	- Select -
Ultima ads:
	$- Select -
	- Select -	- Select -
Office management:
	$- Select -
	- Select -
	- Select -	- Select -
Total			$fill in the blank 653d57fdf04bfa1_41

Question Content Area

2. On the basis of the budget prepared in Requirement 1, advise Gene regarding actions that might be taken to reduce expenses.

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