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 14,880 for the Sleepeze, 11,860 for the Plushette, and 5,210 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office (including himself at $66,750, a marketing research assistant at $38,850, and an administrative assistant at $27,700) are budgeted for $133,300 next year.
Depreciation on the offices and equipment is $18,450 per year.
Office supplies and other expenses total $22,700 per year.
Advertising has been steady at $19,850 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.
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 $45 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 $188 12,650 $209 14,880 $209 17,800
Plushette 297 9,860 346 11,860 357 14,270
Ultima 860 2,150 970 5,210 1,180 5,210

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

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1. Sales Revenue
			Pessimestic			Expected			Optimistic
			Quantity	Price	Total Sale	Quantity	Price	Total Sale	Quantity	Price	Total Sale
	Sleepeze		12,650	$               188	$   2,378,200	14,880	$        209	$   3,109,920	17,800	$        209	$   3,720,200
	Plushette		9,860	$               297	$   2,928,420	11,860	$        346	$   4,103,560	14,270	$        357	$   5,094,390
	Ultima		2,150	$               860	$   1,849,000	5,210	$        970	$   5,053,700	5,210	$    1,180	$   6,147,800
	Total Sales				$   7,155,620			$ 12,267,180			$ 14,962,390
2. Expenses
				Pessimestic	Expected	Optimistic
		Salaries		$       133,300	$       133,300	$       133,300
		Depreciations		$         18,450	$         18,450	$         18,450
		Office Supplies and Others		$         22,700	$         22,700	$         22,700
		Advertising:
		Sleepeze & Plushette		$         19,850	$         19,850	$         19,850
		Ultima	10% of Ultima Sale	$       184,900	$       505,370	$       614,780
		Commissions	5% of (Sleepeze and Plushette Sale)	$       265,331	$       360,674	$       440,730
		Shipping:
		Sleepeze	45 Per unit Sold	$       569,250	$       669,600	$       801,000
		Plushette	45 Per unit Sold	$       443,700	$       533,700	$       642,150
		Ultima	75 Per unit Sold	$       161,250	$       390,750	$       390,750
		Total		$   1,818,731	$   2,654,394	$   3,083,710