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 15,560 for the Sleepeze, 11,960 for the Plushette, and 5,150 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $66,950, a marketing research assistant at $44,850, and an administrative assistant at $26,000) are budgeted for $137,800 next year.
2. Depreciation on the offices and equipment is $17,450 per year.
3. Office supplies and other expenses total $20,800 per year.
4. Advertising has been steady at $18,400 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 20 percent of first-year Ultima sales for a print and television campaign.
5. Commissions on the Sleepeze and Plushette lines are 6 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 $55 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	$183	12,300		$200	15,560		$200	18,360
Plushette	292	10,390		340	11,960		352	14,480
Ultima	890	2,300		970	5,150		1,150	5,150

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

Olympus, Inc.
Revenue Budget
For the Coming Year
	Pessimistic	Expected	Optimistic
Sleepeze	$        2,250,900	$          3,112,000	$          3,672,000
Plushette	$        3,033,880	$          4,066,400	$          5,096,960
Ultima	$        2,047,000	$          4,995,500	$          5,922,500
Total	$        7,331,780	$        12,173,900	$        14,691,460

Olympus, Inc.
Flexible Expense Budge
For the Coming Year
	Pessimistic	Expected	Optimistic
Salaries	$            137,800	$              137,800	$              137,800
Depreciation	$              17,450	$                17,450	$                17,450
Office supplies and other	$              20,800	$                20,800	$                20,800
Advertising:
Sleepeze and Plushette	$              18,400	$                18,400	$                18,400
Ultima	$            409,400	$              999,100	$          1,184,500
Commissions	$            317,087	$              430,704	$              526,138
Shipping:
Sleepeze	$            676,500	$              855,800	$          1,009,800
Plushette	$            571,450	$              657,800	$              796,400
Ultima	$            172,500	$              386,250	$              386,250
Total	$        2,341,387	$          3,524,104	$          4,097,538

Calculation Parts

Scenarios		Pessimistic
Sales Revenue Budget
Product Line	Sleepeze	Plushette	Ultima	Total
Unit Sold	12,300	10,390	2,300
Multiply: Selling Price per unit	$                    183	$                    292	$                    890
Sales Revenue	$        2,250,900	$        3,033,880	$        2,047,000	$          7,331,780
Flexible expense budget
Product Line	Sleepeze	Plushette	Ultima	Total
Salaries				$              137,800
Depreciation Expense				$                17,450
Office supplies and other expenses				$                20,800
Common Advertisement				$                18,400
Advertisement for Ultima (Sales Revenue of Ultima*20%)			$            409,400	$              409,400
Commissions (Sales Revenue *6%)	$            135,054	$            182,033		$              317,087
Shipping Expense (For Sleepeze and Plushette = Unit Sold* $55) (For Ultima = Unit Sold* $75)	$            676,500	$            571,450	$            172,500	$          1,420,450
Total Expense				$          2,341,387

Scenarios		Expected
Sales Revenue Budget
Product Line	Sleepeze	Plushette	Ultima	Total
Unit Sold	15,560	11,960	5,150
Multiply: Selling Price per unit	$                    200	$                    340	$                    970
Sales Revenue	$        3,112,000	$        4,066,400	$        4,995,500	$        12,173,900
Flexible expense budget
Product Line	Sleepeze	Plushette	Ultima	Total
Salaries				$              137,800
Depreciation Expense				$                17,450
Office supplies and other expenses				$                20,800
Common Advertisement				$                18,400
Advertisement for Ultima (Sales Revenue of Ultima*20%)			$            999,100	$              999,100
Commissions (Sales Revenue *6%)	$            186,720	$            243,984		$              430,704
Shipping Expense (For Sleepeze and Plushette = Unit Sold* $55) (For Ultima = Unit Sold* $75)	$            855,800	$            657,800	$            386,250	$          1,899,850
Total Expense				$          3,524,104

Scenarios		Optimistic
Sales Revenue Budget
Product Line	Sleepeze	Plushette	Ultima	Total
Unit Sold	18,360	14,480	5,150
Multiply: Selling Price per unit	$                    200	$                    352	$                1,150
Sales Revenue	$        3,672,000	$        5,096,960	$        5,922,500	$        14,691,460
Flexible expense budget
Product Line	Sleepeze	Plushette	Ultima	Total
Salaries				$              137,800
Depreciation Expense				$                17,450
Office supplies and other expenses				$                20,800
Common Advertisement				$                18,400
Advertisement for Ultima (Sales Revenue of Ultima*20%)			$        1,184,500	$          1,184,500
Commissions (Sales Revenue *6%)	$            220,320	$            305,818		$              526,138
Shipping Expense (For Sleepeze and Plushette = Unit Sold* $55) (For Ultima = Unit Sold* $75)	$        1,009,800	$            796,400	$            386,250	$          2,192,450
Total Expense				$          4,097,538