Question

Review the following SG&A budget that was prepared at the beginning of the current year. The economy appears to be slowing, and sales are now expected to run only 80% of plan. How much can now be expected to result for total SG&A?

The only fixed cost that can be reduced relates to the advertising campaign. What are the possible impacts of attempting to save money by cutting a portion of the advertising budget?

Estimated units sold	50,000
* Per unit variable SG&A	$4.00
Total variable SG&A	$200,000
Fixed SG&A:
Salaries	$275,000
Office	60,000
Advertising	175,000
Other	25,000
Total fixed SG&A	$535,000
Total budgeted SG&A	$735,000

	A.	Total budgeted SG & A $698,000
	B.	Total budgeted SG & A $687,000
	C.	Total budgeted SG & A $695,000
	D.	Total budgeted SG & A $696,000
	E.	None of the above

Answer 1

Estimated units sold	40000	=50000*80%
* Per unit variable SG&A	4.00
Total variable SG&A	160000
Fixed SG&A:
Salaries	275000
Office	60000
Advertising	175000
Other	25000
Total fixed SG&A	535000
Total budgeted SG&A	695000
Option C is correct

Cutting a portion of the advertising budget may lead to further reduction in sales and impact corporate brand value as well.

The company should not cut advertising expense at the cost of losing it's customers.