Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,330 for the Sleepeze, 12,340 for the Plushette, and 4,620 for the Ultima. Gene Dixon, vice president of sales, has provided the following information: Salaries for his office (including himself at $62,850, a marketing research assistant at $35,750, and an administrative assistant at $22,600) are budgeted for $121,200 next year. Depreciation on the offices and equipment is $22,150 per year. Office supplies and other expenses total $19,650 per year. Advertising has been steady at $19,000 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 20 percent of first-year Ultima sales for a print and television campaign. 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. 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. Suppose that Gene is considering three sales scenarios as follows: Pessimistic Expected Optimistic Price Quantity Price Quantity Price Quantity Sleepeze $175 12,680 $193 15,330 $193 17,660 Plushette 295 10,460 350 12,340 361 14,510 Ultima 880 1,900 990 4,620 1,180 4,620 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 % - 25 % Jobbers 10 10 15 Basic ads - 15 35 Ultima ads 35 - 5 Office management 20 - 20 Additional information is as follows: Depreciation on the office equipment belongs to the office management activity. Of the $19,650 for office supplies and other expenses, $4,600 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 (80 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: $Salaries Internet connections $Internet connections Shipping: $Salaries Telephone Ship Sleepeze Ship Plushette Ship Ultima Ship Ultima Jobbers: $Salaries Telephone Commissions Commissions Basic ads: $Salaries Advertising Advertising Ultima ads: $Salaries Advertising Advertising Office management: $Salaries Depreciation Office Supplies Office Supplies Total $fill in the blank 2354b4040fde02e_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.

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,330 for the Sleepeze, 12,340 for the Plushette, and 4,620 for the Ultima. Gene Dixon, vice president of sales, has provided the following information: Salaries for his office (including himself at $62,850, a marketing research assistant at $35,750, and an administrative assistant at $22,600) are budgeted for $121,200 next year. Depreciation on the offices and equipment is $22,150 per year. Office supplies and other expenses total $19,650 per year. Advertising has been steady at $19,000 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 20 percent of first-year Ultima sales for a print and television campaign. 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. 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. Suppose that Gene is considering three sales scenarios as follows: Pessimistic Expected Optimistic Price Quantity Price Quantity Price Quantity Sleepeze $175 12,680 $193 15,330 $193 17,660 Plushette 295 10,460 350 12,340 361 14,510 Ultima 880 1,900 990 4,620 1,180 4,620 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 % - 25 % Jobbers 10 10 15 Basic ads - 15 35 Ultima ads 35 - 5 Office management 20 - 20 Additional information is as follows: Depreciation on the office equipment belongs to the office management activity. Of the $19,650 for office supplies and other expenses, $4,600 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 (80 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: $Salaries Internet connections $Internet connections Shipping: $Salaries Telephone Ship Sleepeze Ship Plushette Ship Ultima Ship Ultima Jobbers: $Salaries Telephone Commissions Commissions Basic ads: $Salaries Advertising Advertising Ultima ads: $Salaries Advertising Advertising Office management: $Salaries Depreciation Office Supplies Office Supplies Total $fill in the blank 2354b4040fde02e_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....

See similar textbooks

Related questions

Question

Activity-Based Budget

Salaries for his office (including himself at $62,850, a marketing research assistant at $35,750, and an administrative assistant at $22,600) are budgeted for $121,200 next year.
Depreciation on the offices and equipment is $22,150 per year.
Office supplies and other expenses total $19,650 per year.
Advertising has been steady at $19,000 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 20 percent of first-year Ultima sales for a print and television campaign.
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.
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.

Suppose that Gene is considering three sales scenarios as follows:

	Pessimistic		Expected		Optimistic
	Price	Quantity		Price	Quantity	Price	Quantity
Sleepeze	$175	12,680		$193	15,330	$193	17,660
Plushette	295	10,460		350	12,340	361	14,510
Ultima	880	1,900		990	4,620	1,180	4,620

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

Additional information is as follows:

Depreciation on the office equipment belongs to the office management activity.
Of the $19,650 for office supplies and other expenses, $4,600 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 (80 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:
	$Salaries
	Internet connections	$Internet connections
Shipping:
	$Salaries
	Telephone
	Ship Sleepeze
	Ship Plushette
	Ship Ultima	Ship Ultima
Jobbers:
	$Salaries
	Telephone
	Commissions	Commissions
Basic ads:
	$Salaries
	Advertising	Advertising
Ultima ads:
	$Salaries
	Advertising	Advertising
Office management:
	$Salaries
	Depreciation
	Office Supplies	Office Supplies
Total			$fill in the blank 2354b4040fde02e_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.

Expert Solution

Step by step

Solved in 3 steps with 4 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.