Question

Matthew Gabon, the sales manager of Office Furniture Solutions, prepared the following budget for 2017:

Sales Department Budgeted Costs, 2017 (Assuming Sales of $13,400,000)
Salaries (fixed)		$400,000
Commissions (variable)		180,000
Advertising (fixed)		64,000
Charge for office space (fixed)		3,400
Office supplies & forms (variable)		2,300
Total		$649,700

After he submitted his budget, the president of Office Furniture Solutions reviewed it and recommended that advertising be increased to $84,000. Further, she wanted Matthew to assume a sales level of $14,740,000. This level of sales is to be achieved without adding to the sales force.

Matthew’s sales group occupies approximately 250 square feet of office space out of total administrative office space of 20,000 square feet. The $3,400 space charge in Matthew’s budget is his share (allocated based on relative square feet) of the company’s total cost of rent, utilities, and janitorial costs for the administrative office building.

Prepare a revised budget consistent with the president’s recommendation.

Answer 1

ANSWER

President recommended budget for 2017 is as follow..

Budgeting
		As per
		president
	Actual	recommendation
	2017	2017
sales	13,400,000	14,740,000
variable cost:
commission	180,000	198,000
contribution	13,220,000	14,542,000
Fixed cost:
salries	400,000	400,000
charge for office space	3,400	240
Advertising	64,000	84,000
Profit	12,752,600	14,057,760

Here

space has calculated :

for 20000 square feet -----paid $2000

Relevent space 250 sqf

=[250/20000] * 2000

= 240

and

variable cost of commission calculated as follow..

13,400,000 sale......180,000

for 14,740,000.../

= [14,740,000/13,400,000 ] * 180,000

= $198,000

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