Question

SPU, Ltd., has just received its sales expense report for January, which follows.

Item	Amount
Sales commissions	$	440,500
Sales staff salaries		88,400
Telephone and mailing		49,000
Building lease payment		60,000
Utilities		22,100
Packaging and delivery		83,000
Depreciation		37,750
Marketing consultants		60,190

You have been asked to develop budgeted costs for the coming year. Because this month is typical, you decide to prepare an estimated budget for a typical month in the coming year and you uncover the following additional data:

• Sales volume is expected to increase by 14 percent.
• Sales prices are expected to decrease by 10 percent.
• Commissions are based on a percentage of sales revenue.
• Sales staff salaries will increase 4 percent next year regardless of sales volume.
• Building rent is based on a five-year lease that expires in three years.
• Telephone and mailing expenses are scheduled to increase by 8 percent even with no change in sales volume. However, these costs are variable with the number of units sold, as are packaging and delivery costs.
• Utilities costs are scheduled to increase by 3 percent regardless of sales volume.
• Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $51,000 in furniture that will be received at the start of next year and will be depreciated over a 10-year life using the straight-line method.
• Marketing consultant expenses were for a special advertising campaign that runs from time to time. During the coming year, these costs are expected to average $64,500 per month.

Required:

Prepare a budget for sales expenses for a typical month in the coming year. (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

	Item Budgeted Typical Month Sales commissions Sales staff salaries Telephone and mailing Building lease payment Utilities Packaging and delivery Depreciation Marketing consultants Total budgeted costs

Answer 1

Item	Budgeted typical month
Sales commissions	$451,953
Sales staff salaries	$91,936
Telephone and mailing	$60,329
Building lease payment	$60,000
Utilities	$22,763
Packaging and delivery	$94,620
Depreciation	$38,175
Marketing consultant	$64,500
Total budgeted cost	$884,276

Explanation:

Items	January	Adjustments	Budgeted typical month
Sales commissions	$440,500	$440,500 × 1.14×0.9	$451,953
Sales staff salaries	$88,400	$88,400 × 1.04	$91,936
Telephone and mailing	$49,000	$49,000 ×1.08 ×1.14	$60,329
Building lease payment	$60,000	unchanged	$60,000
Utilities	$22,100	22,100 × 1.03	$22,763
Packaging and delivery	$83,000	$83,000 ×1.14	$94,620
Depreciation	$37,750	($51,000 ÷120 months) =425 + 37,750 = 34,192	$38,175
Marketing consultant		$64,500	$64,500
Total budgeted cost			$884,276

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