Question

Review the following SG&A budget that was prepared at the beginning of the current year. The economy appears to be slowing, and sales are now expected to run only 75% of plan. How much can now be expected to result for total SG&A?

The only fixed cost that can be reduced relates to the advertising campaign. What are the possible impacts of attempting to save money by cutting a portion of the advertising budget?

Selling, General, and Administrative Budget
For the Year Ending December 31, 20X7
Estimated units sold	87,500
X Per unit variable SG&A	X $ 5.50
Total variable SG&A	$ 481,250
Fixed SG&A
Salaries	$ 467,500
Office	112,000
Advertising	292,500
Other	39,250
Total fixed SG&A	$ 911,250
Total budgeted SG&A	$ 1,392,500

Worksheet 7

The following revised budget should reflect only 75% of the sales volume included in the original plan) units:

Selling, General, and Administrative Budget
For the Year Ending December 31, 20X7
Estimated units sold
X Per unit variable SG&A
Total variable SG&A
Fixed SG&A
Salaries
Office
Advertising
Other
Total fixed SG&A
Total budgeted SG&A

Answer 1

Please find below the required solution for above given question:

Working on revised total budgeted SG&A for 75% sales volume of original plan
Selling, General, and Administrative (SG&A) Budget
For the Year Ending December 31, 20X7
Variable SG&A
Estimated units sold	65,625
X Per unit variable SG&A	X $ 5.50
Total variable SG&A - [A]	$360,938
Fixed SG&A
Salaries	$467,500
Office	$112,000
Advertising	$292,500
Other	$39,250
Total fixed SG&A - [B]	$911,250
Total budgeted SG&A - [A] + [B]	$1,272,188

Note: To save money, if one cut a portion of the advertising budget then there would be an impact on losing of sales volume which could be less than the revised budgeted sales volume of 75% of original plan. On the other hand, business will lose its existing customers as well as there are least chances for coming of new customers.