Question

Cloud Productivity Inc. uses flexible budgets that are based on the following data: Sales commissions 15% of sales Advertising expense 18% of sales Miscellaneous administrative expense $8,500 per month plus 12% of sales Office salaries expense $30,000 per month Customer support expenses $13,000 per month plus 20% of sales Research and development expense $32,000 per month Prepare a flexible selling and administrative expenses budget for March for sales volumes of $400,000, $500,000, and $600,000. (Use Exhibit 5 as a model.) Cloud Productivity Inc. Flexible Selling and Administrative Expenses Budget For the Month Ending March 31 Total sales $400000 $500000 $600000 Variable cost: Sales commissions $ $ $ Advertising expense Miscellaneous administrative expense Customer support expenses Total variable cost $ $ $ Fixed cost: Miscellaneous administrative expense $ $ $ Office salaries expense Customer support expenses Research and development expense Total fixed cost $ $ $ Total selling and administrative expenses $ $ $

Answer 1

Ans.	CLOUD PRODUCTIVITY INC.
	Flexible Selling and Administrative Expenses Budget
	For the Month Ending March 31
	Total sales	$400,000	$500,000	$600,000
	Variable cost:
	Sales commissions	$60,000	$75,000	$90,000
	Advertising expense	$72,000	$90,000	$108,000
	Miscellaneous administrative expense	$48,000	$60,000	$72,000
	Customer support expenses	$80,000	$100,000	$120,000
	Total variable costs	$260,000	$325,000	$390,000
	Fixed cost:
	Miscellaneous administrative expense	$8,500	$8,500	$8,500
	Office salaries expense	$30,000	$30,000	$30,000
	Customer support expenses	$13,000	$13,000	$13,000
	Research and development expenses	$32,000	$32,000	$32,000
	Total fixed costs	$83,500	$83,500	$83,500
	Total selling and administrative expenses	$343,500	$408,500	$473,500
	*Calculations of Variable costs:
	Total sales	$400,000	$500,000	$600,000
	Variable cost:
	Sales commissions	$400,000 * 15%	$500,000 * 15%	$600,000 * 15%
	Advertising expense	$400,000 * 18%	$500,000 * 18%	$600,000 * 18%
	Miscellaneous administrative expense	$400,000 * 12%	$500,000 * 12%	$600,000 * 12%
	Customer support expenses	$400,000 * 20%	$500,000 * 20%	$600,000 * 20%
	*Fixed costs remain constant on each level of sales.
	*Miscellaneous administrative expense and customer support expenses are the mixed costs so these
	are saperately distributed into fixed and variable.