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 15,130 for the Sleepeze, 11,920 for the Plushette, and 5,500 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $64,200, a marketing research assistant at $39,950, and an administrative assistant at $23,900) are budgeted for $128,050 next year.
2. Depreciation on the offices and equipment is $18,150 per year.
3. Office supplies and other expenses total $22,500 per year.
4. Advertising has been steady at $21,650 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 $80 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	$179	12,660		$204	15,130		$204	17,770
Plushette	302	10,300		352	11,920		362	14,520
Ultima	860	2,140		950	5,500		1,130	5,500

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)

Olympus, Inc
Revenue Budget
For the coming year
	Pessimistic	Expected	Optimistic
Sleepeze	$2,266,140 (12,660 ×$179)	$3,086,520 (15,130 ×$204)	$3,625,080 (17,770 ×$204)
Plushette	$3,110,600 (10,300 ×$302)	$4,195,840 (11,920 ×352)	$5,256,240 (14,520 × $362)
Ultima	$1,840,400 (2,140 ×$860)	$5,225,000 (5,500 ×950)	$6,215,000 (5,500 ×1130)
Total sales	$7,217,140	$12,507,360	$15,096,320

2)

Olympus Inc
Flexible Expense Budget
For the coming year
	Pessimistic	Expected	optimistic
Salaries	$128,050	$128,050	$128,050
Depreciation	$18,150	$18,150	$18,150
Office supplies and other	$22,500	$22,500	$22,500
Advertising:
Sleepeze & Plushette	$21,650	$21,650	$21,650
Ultima	$184,040 ($1,840,400 ×10%)	$522,500 ($5,225,000 ×10%)	$621,500 ($6,215,000 ×10%)
Commissions	$161,302 (2,266,140 + 3,110,600) ×3%	$218,471 ($3,086,520 +$4,195,840) ×3%	$266,440 ($3,625,080 + $5,256,240) ×3%
Shipping:
Sleepeze	$569,700 (12,660 ×$45)	$680,850 (15,130 ×$45)	$799,650 (17,770 ×$45)
Plushette	$463,500 (10,300 ×$45)	$536,400 (11,920 ×$45)	$653,400 (14,520 ×$45)
Ultima	$171,200 (2,140 ×$80)	$440,000 (5,500 ×$80)	$440,000 (5,500 ×$80)
Total	$1,740,092	$2,588,571	$2,971,340