Question

SPU, Ltd., has just received its sales expense report for January, which follows.Item AmountSales commissions $370,500Sales staff salaries 92,400Telephone and mailing 43,000Building lease payment 60,000Utilities 17,100Packaging and delivery 82,000Depreciation 36,750Marketing consultants 52,190You 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:1. Sales volume is expected to increase by 14 percent.2. Sales prices are expected to decrease by 10 percent.3. Commissions are based on a percentage of sales revenue.4. Sales staff salaries will increase 4 percent next year regardless of sales volume.5. Building rent is based on a five-year lease that expires in three years.6. 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.7. Utilities costs are scheduled to increase by 2 percent regardless of sales volume.8. Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $57,000 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.9. 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.

Answer 1

To prepare a budgeted cost for the upcoming year, adjustments are made based on projected changes in sales volume, prices, and fixed costs such as salaries, lease payments, utilities, and depreciation, while considering variable costs such as sales commissions, telephone and mailing, and packaging and delivery.

Step-by-step explanation:

Budget for Sales Expenses

To develop a budgeted cost for SPU, Ltd. for the coming year, we need to consider the additional data provided about changes in sales volume, sales prices, and expenses. We'll adjust each cost according to the given instructions:

1. Sales commissions: These are variable costs that will change in proportion to sales revenue. With a 14% increase in sales volume but a 10% decrease in sales prices, the net effect on commissions is an increase by approximately 3.6%.
2. Sales staff salaries: These will increase by a fixed rate of 4% next year.
3. Telephone and mailing: These costs will increase by 8% plus additional increments based on the increase in sales volume.
4. Building lease payment: No changes since it's based on a 5-year lease.
5. Utilities: Will increase by 2%.
6. Packaging and delivery: These costs will likely increase in proportion to sales volume.
7. Depreciation: The addition of new furniture will result in increased depreciation. The new annual depreciation for the $57,000 will be $5,700 (divided by 10), to be added to the existing depreciation amount.
8. Marketing consultants: The budgeted cost will be $64,500 as is the new estimate.

After adjusting each item accordingly, you can sum these to determine the total budgeted sales expenses for a typical month.

Answer 2

SPU, Ltd.

Sales Expense

Report for January Sales Expense Budget

Item Amount Amount

Sales commissions $370,500 $380,133

Sales staff salaries 92,400 92,096

Telephone and mailing 43,000 52,942

Building lease payment 60,000 60,000

Utilities 17,100 17,442

Packaging and delivery 82,000 93,480

Depreciation 36,750 37,225

Marketing consultants 52,190 64,500

Total Sales Expenses $753,940 $797,818

Step-by-step explanation:

1. Sales volume is expected to increase by 14 percent.

2. Sales prices are expected to decrease by 10 percent.

3. Commissions are based on a percentage of sales revenue.

Sales Commissions = $380,133 ($370,500 x 1.14 x 0.9)

4. Sales staff salaries will increase 4 percent next year regardless of sales volume.

Sales staff salaries = $96,096 ($92,400 x 1.04)

5. Building rent is based on a five-year lease that expires in three years.

6. 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.

Telephone and mailing = $52,942 ($43,000 x 1.08 x 1.14)

Package and delivery = $93,480 ($82,000 x 1.14)

7. Utilities costs are scheduled to increase by 2 percent regardless of sales volume.

Utilities = $17,442 ($17,100 x 1.02)

8. Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $57,000 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.

Previous depreciation = $36,750

Current year's addition 475 ($57,000/10 years/12 months)

Total for the month $37,225

9. 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.