Question

The marketing plan at E-Tech Systems is based on a corporate restructure which divides the company into two separate groups: (1) Commercial Systems and (2) Personal Systems. Samantha Smith was assigned responsibility for the Personal Systems group. The marketing plan, which included a sales forecast next year of $100 million, was the result of a detailed market analysis. Sales representatives would receive a 20 percent commission on sales of personal systems. Under the new organizational structure, the Personal Systems group would be charged with 40 percent of the budgeted sales force expenditure. The sales director's budget for salaries and benefits of the sales force and noncommission selling costs for both the Commercial and Personal Systems group was $10 million. The advertising and promotion budget contained three elements: trade advertising, cooperative advertising, and sales promotion material. Advertising production and media placement costs were budgeted at $475,000. Cooperative advertising had budgeted production costs of $155,000. Cooperative advertising allowance policy stated that the company would allocate 12 percent of company sales to dealers to promote its systems. Sales promotion material was budgeted at 2 percent of company sales. Direct costs of material and labor and direct factory overhead to produce the Personal System product line represented 30 percent of sales. The company would assign $750,000 in indirect manufacturing overhead to the product line and $375,000 for administrative overhead. Freight for the product line would average 9 percent of sales.

Answer 1

E-Tech Systems

Solution:

E-Tech Systems Proforma Income Statement Sales Cost of goods sold Gross profit $100,000,000 $30,000,000 $70,000,000 Marketing expenses Sales expenses: Salary Commissions Total marketing expenses $4,000,000 $20,000,000 $24,000,000 Advertising/sales promotion Advertising Coop Advertising Coop Allowance Sales Promotion Total advertising/sales promotion $475,000 $155,000 $12,000,000 $2,000,000 $14,630,000 Freight expenses: Freight Costs $9,000,000 General and administration expenses: Manufacturing fixed costs $750,000 Administrative overhead $375,000 Salaries/benefits $450,000 Total General & Admin Expenses $1,575,000 Net Profit $42,795,000

Computations –

Cost of goods sold = 30% sales = 30% x 100,000,000 = $30,000,000

Marketing expenses –

Salary – 40% x $10,000,000 = $4,000,000

Commissions - 20% x 100,000,000

Advertising expenses –

Advertising = $475,000

Coop advertising expenses $155,000

Allowance – 12% x 100,000,000 = $12,000,000

Sales promotion = 2% x $100,000,000 = $2,000,000

Freight expenses – 9% x 100,000,000 = $9,000,000

Mfg. OH – 750,000

Admin oh = 375,000

Salaries and benefits - $450,000