Activity-Based BudgetOlympus, Inc., manufactures three models of mattresses: the Sleepeze, the Plushette, and the Ultima. Forecast sales for next year are 15,030 for the Sleepeze, 12,080 for thePlushette, and 4,560 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:a. Salaries for his office (including himself at $65,450, a marketing research assistant at $45,000, and an administrative assistant at $24,800) are budgeted for $135,250 nextyear.b. Depreciation on the offices and equipment is $17,450 per year.c. Office supplies and other expenses total $23,300 per year.d. Advertising has been steady at $17,850 per year. However, the Ultima is a new product and will require extensive advertising to educate consumers on the unique features ofthis 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 $45 per unit sold. Gene expects the Ultima line to ship for $70 per unit sold since this model features a largermattress.Suppose that Gene is considering three sales scenarios as follows:PessimisticExpectedOptimisticPrice Quantity Price Quantity Price QuantitySleepeze$18412,560$20115,030$20118,090Plushette3069,72035512,08036514,030Ultima8801,9109504,5601,1404,560Suppose 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 correct errorsJobbers-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%Shipping25%20%Jobbers151020Basic ads1540Ultima ads3510Office management2510Additional information is as follows:a. Depreciation on the office equipment belongs to the office management activity.b. Of the $23,300 for office supplies and other expenses, $4,800 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. Anadditional $3,000 per year is attributable to Internet connections and fees, and the bulk of these costs (85 percent) are assignable to research. The remainder is a cost of officemananemant All other office sunnlies and costs are assioned to the office mananement actisit 8: Problems for Budgeting Part 2a. Depreciation on the office equipment belongs to the office management activity.b. Of the $23,300 for office supplies and other expenses, $4800 can be assigned to telephone costs which can be split evenly betvween the shipping and jobbers' activities. Anadditional $3,000 per year is attributable to Internet connections and fees, and the bulk of these costs (85 percent) are assignable to research. The remainder is a cost of officmanagement. All other office supplies and costs are assigned to the office management activity.Required: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 YearResearch:SalariesInternet connectionsShipping:SalariesTelephoneShip SleepezeShip PlushetteShip UltimaJobbers:SalariesTelephoneCommissionsBasic ads:SalariesAdvertisingUltima ads:SalariesAdvertisingOffice management:SalariesDepreciationoffice SuppliesTotal2. On the basis of the budget prepared in Requirement 1, advise Gene regarding actions that might be taken to reduce expenses.Gene should focus on the most costly activities: shipping, Ultima advertising and commissions to jobbers.

As per activity based budget, activities are analyzed thoroughly to find the cost of each activity.

a. Depreciation on the office equipment belongs to the office management activity. b. Of the $23,300 for office supplies and other expenses, $4,800 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. Am additional $3,000 per year is attributable to Internet connections and fees, and the bulk of these costs (85 percent) are assignable to research. The remainder is a cost of c management. All other office supplies and costs are assigned to the office management activity. Required: 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

a. Depreciation on the office equipment belongs to the office management activity. b. Of the $23,300 for office supplies and other expenses, $4,800 can be assigned to telephone costs which can be split evenly between the shipping and jobbers' activities. Am additional $3,000 per year is attributable to Internet connections and fees, and the bulk of these costs (85 percent) are assignable to research. The remainder is a cost of c management. All other office supplies and costs are assigned to the office management activity. Required: 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

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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