Question

Flexible Budget for Selling and Administrative Expenses for a Service Company

Cloud Productivity Inc. uses flexible budgets that are based on the following data:

Sales commissions	15% of sales
Advertising expense	20% of sales
Miscellaneous administrative expense	$5,000 per month plus 12% of sales
Office salaries expense	$30,000 per month
Customer support expenses	$13,000 per month plus 20% of sales
Research and development expense	$30,000 per month

Prepare a flexible selling and administrative expenses budget for March for sales volumes of $400,000, $500,000, and $600,000. (Use Exhibit 5 as a model.)

Cloud Productivity Inc.
Flexible Selling and Administrative Expenses Budget
For the Month Ending March 31
Total sales	$400000	$500000	$600000
Variable cost:
Sales commissions	$	$	$
Advertising expense
Miscellaneous administrative expense
Customer support expenses
Total variable cost	$	$	$
Fixed cost:
Miscellaneous administrative expense	$	$	$
Office salaries expense
Customer support expenses
Research and development expense
Total fixed cost	$	$	$
Total selling and administrative expenses

Answer 1

Answer

• Requirement

Total sales	$400,000	$500,000	$600,000
Variable cost:
Sales commissions	$60,000	$75,000	$90,000
Advertising expense	$80,000	$100,000	$120,000
Miscellaneous administrative expense	$48,000	$60,000	$72,000
Customer support expenses	$80,000	$100,000	$120,000
Total variable cost	$268,000	$335,000	$402,000
Fixed cost:
Miscellaneous administrative expense	$5,000	$5,000	$5,000
Office salaries expense	$30,000	$30,000	$30,000
Customer support expenses	$13,000	$13,000	$13,000
Research and development expense	$30,000	$30,000	$30,000
Total fixed cost	$78,000	$78,000	$78,000
Total selling and administrative expenses	$346,000	$413,000	$480,000

--Working for Variable cost

Total sales	400000	500000	600000
Variable cost:
Sales commissions	=400000*15%	=500000*15%	=600000*15%
Advertising expense	=400000*20%	=500000*20%	=600000*20%
Miscellaneous administrative expense	=400000*12%	=500000*12%	=600000*12%
Customer support expenses	=400000*20%	=500000*20%	=600000*20%