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 15,540 for the Sleepeze, 12,140 for the Plushette, and 4,570 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

1. Salaries for his office (including himself at $67,550, a marketing research assistant at $40,150, and an administrative assistant at $23,400) are budgeted for $131,100 next year.
2. Depreciation on the offices and equipment is $17,050 per year.
3. Office supplies and other expenses total $23,800 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 15 percent of first-year Ultima sales for a print and television campaign.
5. Commissions on the Sleepeze and Plushette lines are 5 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 $70 per unit sold since this model features a larger mattress.

Required:

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

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 15,540 for the Sleepeze, 12,140 for the Plushette, and 4,570 for the Ultima. Gene Dixon, vice president of sales, has provided the following information: Salaries for his office (including himself at $67,550, a marketing research assistant at $40,150, and an administrative assistant at $23,400) are budgeted for $131,100 next year. Depreciation on the offices and equipment is $17,050 per year. Office supplies and other expenses total $23,800 per year. 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 15 percent of first-year Ultima sales for a print and television campaign. Commissions on the Sleepeze and Plushette lines are 5 percent of sales. These commissions are paid to independent jobbers who sell the mattresses to retail stores. Last year, shipping for the Sleepeze and Plushette lines averaged $55 per unit sold. Gene expects the Ultima line to ship for $70 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 $174 12,460 $199 15,540 $199 18,280 Plushette 290 9,920 349 12,140 358 13,880 Ultima 930 2,050 1,020 4,570 1,210 4,570 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 $ $ $

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	$	$	$

(That is all that is provided)

Answer 1

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Olympus Inc.
Pessimistic Situation							Expected Situation							Optimistic Situation
Workings							Workings							Workings
Product	Sleepeze	Plushette	Ultima	Total			Product	Sleepeze	Plushette	Ultima	Total			Product	Sleepeze	Plushette	Ultima	Total
Sales (units)	12,460.00	9,920.00	2,050.00		A		Sales (units)	15,540.00	12,140.00	4,570.00		H		Sales (units)	18,280.00	13,880.00	4,570.00		O
Rate	174.00	290.00	930.00		B		Rate	199.00	349.00	1,020.00		I		Rate	199.00	358.00	1,210.00		P
Revenue Budget	2,168,040.00	2,876,800.00	1,906,500.00	6,951,340.00	C=A*B		Revenue Budget	3,092,460.00	4,236,860.00	4,661,400.00	11,990,720.00	J=H*I		Revenue Budget	3,637,720.00	4,969,040.00	5,529,700.00	14,136,460.00	Q=O*P
Advertising at 15%			285,975.00		D=C*15%		Advertising at 15%			699,210.00		K=J*15%		Advertising at 15%			829,455.00		R=Q*15%
Commissions @ 5%	108,402.00	143,840.00		252,242.00	E=C*5%		Commissions @ 5%	154,623.00	211,843.00		366,466.00	L=J*5%		Commissions @ 5%	181,886.00	248,452.00		430,338.00	S=Q*5%
Shipping cost per unit	55.00	55.00	70.00		F		Shipping cost per unit	55.00	55.00	70.00		M		Shipping cost per unit	55.00	55.00	70.00		T
Shipping cost	685,300.00	545,600.00	143,500.00	1,374,400.00	G=A*F		Shipping cost	854,700.00	667,700.00	319,900.00	1,842,300.00	N=H*M		Shipping cost	1,005,400.00	763,400.00	319,900.00	2,088,700.00	U=T*O

Final Solution	Amount $
Revenue Budget	Pessimistic	Expected	Optimistic
Sleepeze	2,168,040.00	3,092,460.00	3,637,720.00
Plushette	2,876,800.00	4,236,860.00	4,969,040.00
Ultima	1,906,500.00	4,661,400.00	5,529,700.00
Total Sales	$ 6,951,340.00	$ 11,990,720.00	$ 14,136,460.00
Flexible expense budget
	Pessimistic	Expected	Optimistic
Salaries	131,000.00	131,000.00	131,000.00
Depreciation	17,050.00	17,050.00	17,050.00
Office supplies and other	23,800.00	23,800.00	23,800.00
Advertising:
Sleepeze and Plushette	21,650.00	21,650.00	21,650.00
Ultima	285,975.00	699,210.00	829,455.00
Commissions	252,242.00	366,466.00	430,338.00
Shipping:
Sleepeze	685,300.00	854,700.00	1,005,400.00
Plushette	545,600.00	667,700.00	763,400.00
Ultima	143,500.00	319,900.00	319,900.00
Total	$ 2,106,117.00	$    3,101,476.00	$    3,541,993.00