8Activity-Based BudgetOlympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,590 for the Sleepeze, 11,730 for the Plushette, and 5,360 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:Salaries for his office (including himself at $66,850, a marketing research assistant at $41,600, and an administrative assistant at $23,300) are budgeted for $131,750 next year.Depreciation on the offices and equipment is $20,100 per year.Office supplies and other expenses total $18,700 per year.Advertising has been steady at $18,100 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 $70 per unit sold since this model features a larger mattress.Additional information is as follows:Depreciation on the office equipment belongs to the office management activity.Of the $18,700 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 $2,100 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. Suppose that Gene is considering three sales scenarios as follows:PessimisticExpectedOptimisticPrice Quantity Price Quantity Price QuantitySleepeze$18512,630$20815,590$20818,500Plushette3029,68034211,73035614,350Ultima8802,1409905,3601,1605,360Suppose Gene determines that next year's Sales Division activities include the following:Research-researching current and future conditions in the industryShipping-arranging for shipping of mattresses and handling calls from purchasing agents at retail stores to trace shipments and correcterrorsJobbers-coordinating the efforts of the independent jobbers who sell the mattressesBasic ads-placing print and television ads for the Sleepeze and Plushette linesUltima ads-choosing and working with the advertising agency on the Ultima accountOffice management-operating the Sales Division officeThe percentage of time spent by each employee of the Sales Division on each of the above activities is given in the following table:ResearchAdministrativeGeneAssistantAssistantResearch75%Shipping30%20%Jobbers201020Basic ads1535Ultima ads355Office management1520Additional information is as follows:a. Depreciation on the office equipment belongs to the office management activity. 1. Prepare an activity-based budget for next year by activity. Use the expected level of sales activity. If required, round answers to thenearest dollar.Olympus, Inc.Activity-Based BudgetFor Next YearResearch:SalariesInternet connectionsShipping:SalariesTelephoneShip SleepezeShip PlushetteShip UltimaJobbers:SalariesTelephoneCommissionsBasic ads:SalariesAdvertisingUltima ads:SalariesAdvertisingOffice management:SalariesDepreciation

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Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter21: Variable Costing For Management analysis

Section: Chapter Questions

Problem 15E

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Activity-Based Budget

Olympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,590 for the Sleepeze, 11,730 for the Plushette, and 5,360 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office (including himself at $66,850, a marketing research assistant at $41,600, and an administrative assistant at $23,300) are budgeted for $131,750 next year.
Depreciation on the offices and equipment is $20,100 per year.
Office supplies and other expenses total $18,700 per year.
Advertising has been steady at $18,100 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 $70 per unit sold since this model features a larger mattress.
Additional information is as follows:
1. Depreciation on the office equipment belongs to the office management activity.
2. Of the $18,700 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 $2,100 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.

Suppose that Gene is considering three sales scenarios as follows:
Pessimistic
Expected
Optimistic
Price Quantity Price Quantity Price Quantity
Sleepeze
$185
12,630
$208
15,590
$208
18,500
Plushette
302
9,680
342
11,730
356
14,350
Ultima
880
2,140
990
5,360
1,160
5,360
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:
Research
Administrative
Gene
Assistant
Assistant
Research
75%
Shipping
30%
20%
Jobbers
20
10
20
Basic ads
15
35
Ultima ads
35
5
Office management
15
20
Additional information is as follows:
a. Depreciation on the office equipment belongs to the office management activity.

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 Budget
For Next Year
Research:
Salaries
Internet connections
Shipping:
Salaries
Telephone
Ship Sleepeze
Ship Plushette
Ship Ultima
Jobbers:
Salaries
Telephone
Commissions
Basic ads:
Salaries
Advertising
Ultima ads:
Salaries
Advertising
Office management:
Salaries
Depreciation

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