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 15,160 for the Sleepeze, 12,430 for the Plushette, and 5,410 for the Ultima. Gene Dixon, vice president of sales, has provided the following information:

Salaries for his office (including himself at $65,750, a marketing research assistant at $44,400, and an administrative assistant at $23,600) are budgeted for $133,750 next year.

Depreciation on the offices and equipment is $21,150 per year.

Office supplies and other expenses total $19,500 per year.

Advertising has been steady at $17,600 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 4 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	$189	12,040		$214	15,160		$214	18,310
Plushette	292	10,370		333	12,430		346	14,400
Ultima	910	1,820		980	5,410		1,160	5,410

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

	Given Information
		Pessimistic		Expected		Optimistic
		Price	Quantity	Price	Quantity	Price	Quantity
	Sleepeze	$189	12,040	$214	15,160	$214	18,310
	Plushette	292	10,370	333	12,430	346	14,400
	Ultima	910	1,820	980	5,410	1,160	5,410
	Olympus, Inc.
	Revenue Budget                    In $
	For the Coming Year
		Pessimistic	Expected	Optimistic
	Sleepeze	$2,275,560	$3,244,240	$3,918,340
	Plushette	$3,028,040	$4,139,190	$4,982,400
	Ultima	$1,656,200	$5,301,800	$6,275,600
	Total sales	$6,959,800	$12,685,230	$15,176,340
	Olympus, Inc.
	Flexible Expense Budget                                                 In $
	For the Coming Year
		Pessimistic	Expected	Optimistic
	Salaries	133,750	133,750	133,750
	Depreciation	21,750	21,750	21,750
	Office supplies and other	19,500	19,500	19,500
	Advertising:	266,030	812,870	958,940
	Sleepeze and Plushette	17,600	17,600	17,600
	Ultima (Ultima Sales *15% )	248,430	795,270	941,340	Refer Working Notes 1
	Commissions	212,144	295,337	356,030	Refer Working Notes 2
	Shipping:
	Sleepeze	541,800	682,200	823,950	Refer Working Notes 3
	Plushette	466,650	559,350	648,000	Refer Working Notes 4
	Ultima	136,500	405,750	405,750	Refer Working Notes 5
	Total	1,798,124	2,930,507	3,367,670
	Working Notes
		Pessimistic	Expected	Optimistic
1	Ultima (Ultima Sales *15% )	=1656200*0.15	=5301800*0.15	=6275600*0.15
2	Commissions	=Sales (Sleepeze+Plushette) *4%
	Sleepeze	$2,275,560	$3,244,240	$3,918,340
	Plushette	3,028,040	4,139,190	4,982,400
	Total	5,303,600	7,383,430	8,900,740
	Commissions	212,144	295,337	356,030
	Shipping:
3	Sleepeze	Unit Sold *$45
	Unit Sold	12,040	15,160	18,310
	Shipping Cost	541800	682200	823950
4	Plushette	Unit Sold *$45
	Unit Sold	10,370	12,430	14,400
	Shipping Cost	466650	559350	648000
5	Ultima	Unit Sold *$75
	Unit Sold	1,820	5,410	5,410
	Shipping Cost	136500	405750	405750