Question

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 14,960 for the Sleepeze, 12,080 for the Plushette, and 5,460 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $62,550, a marketing research assistant at $44,900, and an administrative assistant at $27,450) are budgeted for $134,900 next year.
2. Depreciation on the offices and equipment is $17,050 per year.
3. Office supplies and other expenses total $20,900 per year.
4. 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 10 percent of first-year Ultima sales for a print and television campaign.
5. 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.
6. 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.

Required:

1. Suppose that Gene is considering three sales scenarios as follows:

Pessimistic			Expected			Optimistic
	Price	Quantity		Price	Quantity		Price	Quantity
Sleepeze	$185	12,190		$204	14,960		$204	17,580
Plushette	297	9,990		354	12,080		365	14,600
Ultima	880	2,180		950	5,460		1,140	5,460

Prepare a revenue budget for the Sales Division for the coming year for each scenario.

Olympus, Inc.
Revenue Budget
For the Coming Year
	Pessimistic	Expected	Optimistic
Sleepeze	$	$	$
Plushette
Ultima
Total sales	$	$	$

2. Prepare a flexible expense budget for the Sales Division for the three scenarios above. If required, round answers to the nearest dollar.

Olympus, Inc.
Flexible Expense Budget
For the Coming Year
	Pessimistic	Expected	Optimistic
Salaries	$	$	$
Depreciation
Office supplies and other
Advertising:
Sleepeze and Plushette
Ultima
Commissions
Shipping:
Sleepeze
Plushette
Ultima
Total	$	$	$

Answer 1

1	Revenue Budget for the sales division for the coming year for each scenerio
		Pessimistic	Expected	Optimistic
	Sleepeze	$2,255,150	$3,051,840	$3,586,320
	Plushette	$2,967,030	$4,276,320	$5,329,000
	Ultima	$1,918,400	$5,187,000	$6,224,400
	Revenue = Quantity x Price
		Pessimistic	Expected	Optimistic
	Sleepeze	12190*185	14960*204	17580*204
	Plushette	9990*297	12080*354	14600*365
	Ultima	2180*880	5460*950	5460*1140
2	Flexible expense budget for the sales division for the three scenerios
		Pessimistic	Expected	Optimistic
	Salaries	$134,900	$134,900	$134,900
	Depreciation	$17,050	$17,050	$17,050
	Office supplies and other	$20,900	$20,900	$20,900
	Advertising:
	Sleepeze and Plushette	$19,000	$19,000	$19,000
	Ultima	$191,840	$518,700	$622,440
	Commissions	$156,665	$219,845	$267,460
	Shipping:
	Sleepeze	$548,550	$673,200	$791,100
	Plushette	$449,550	$543,600	$657,000
	Ultima	$163,500	$409,500	$409,500
	Total	$1,701,955	$2,556,695	$2,939,350
	Working Note:
	Advertising for Ultima = Sales revenue x 10%
	Commissions = (Sales revenue for Sleepeze+sales revenue for Plushette) x 3%
	Shipping = Quantity x $45 (sleepeze and plushette)
	Quantity x $75 (Ultima)