Question

Flexible Budget for Selling and Administrative Expenses for a Service Company

Morningside Technologies Inc. uses flexible budgets that are based on the following data:

Sales commissions	7% of sales
Advertising expense	25% of sales
Miscellaneous administrative expense	$1,850 per month plus 3% of sales
Office salaries expense	$17,000 per month
Customer support expenses	$2,600 plus 4% of sales
Research and development expense	5,750 per month

Prepare a flexible selling and administrative expenses budget for April for sales volumes of $115,000, $145,000, and $175,000. Enter all amounts as positive numbers.

Morningside Technologies Inc.
Flexible Selling and Administrative Expenses Budget
For the Month Ending April 30
Total sales	$115,000	$145,000	$175,000
Variable cost:
Sales commissions	$	$	$
Advertising expense
Miscellaneous administrative expense
Customer support expense
Total variable cost	$	$	$
Fixed cost:
Miscellaneous administrative expense	$	$	$
Office salaries expense
Customer support expense
Research and development expense
Total fixed cost	$	$	$
Total selling and administrative expenses	$	$	$

2.

Sales and Production Budgets

Sonic Inc. manufactures two models of speakers, Rumble and Thunder. Based on the following production and sales data for June, prepare (a) a sales budget and (b) a production budget.

	Rumble		Thunder
Estimated inventory (units), June 1	278		77
Desired inventory (units), June 30	319		67
Expected sales volume (units):
East Region	4,100		4,600
West Region	5,000		4,350
Unit sales price	$115		$185

a. Prepare a sales budget.

Sonic Inc.
Sales Budget
For the Month Ending June 30
Product and Area	Unit Sales Volume	Unit Selling Price	Total Sales
Model Rumble:
East Region		$	$
West Region
Total			$
Model Thunder:
East Region		$	$
West Region
Total			$
Total revenue from sales			$

3.

Cash Budget

The controller of Sonoma Housewares Inc. instructs you to prepare a monthly cash budget for the next three months. You are presented with the following budget information:

	May		June		July
Sales	$90,000		$111,000		$142,000
Manufacturing costs	38,000		48,000		51,000
Selling and administrative expenses	26,000		30,000		31,000
Capital expenditures	_		_		34,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 60% are expected to be collected in the month following the sale and the remainder the following month (second month following sale). Depreciation, insurance, and property tax expense represent $9,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in September, and the annual property taxes are paid in November. Of the remainder of the manufacturing costs, 75% are expected to be paid in the month in which they are incurred and the balance in the following month.

Current assets as of May 1 include cash of $34,000, marketable securities of $49,000, and accounts receivable of $107,800 ($79,000 from April sales and $28,800 from March sales). Sales on account for March and April were $72,000 and $79,000, respectively. Current liabilities as of May 1 include $10,000 of accounts payable incurred in April for manufacturing costs. All selling and administrative expenses are paid in cash in the period they are incurred. An estimated income tax payment of $13,000 will be made in June. Sonoma’s regular quarterly dividend of $9,000 is expected to be declared in June and paid in July. Management wants to maintain a minimum cash balance of $27,000.

Required:

1. Prepare a monthly cash budget and supporting schedules for May, June, and July. Input all amounts as positive values except overall cash decrease and deficiency which should be indicated with a minus sign.

Sonoma Housewares Inc.
Cash Budget
For the Three Months Ending July 31
	May	June	July
Estimated cash receipts from:
Cash sales	$	$	$
Collection of accounts receivable
Total cash receipts	$	$	$
Estimated cash payments for:
Manufacturing costs	$	$	$
Selling and administrative expenses
Capital expenditures
Other purposes:
Income tax
Dividends
Total cash payments	$	$	$
Cash increase or (decrease)	$	$	$
Cash balance at beginning of month
Cash balance at end of month	$	$	$
Minimum cash balance
Excess or (deficiency)	$	$	$

4.

Factory Overhead Cost Budget

Sweet Tooth Company budgeted the following costs for anticipated production for August:

Advertising expenses	$259,400
Manufacturing supplies	14,220
Power and light	42,400
Sales commissions	290,020
Factory insurance	24,690
Production supervisor wages	124,710
Production control wages	32,420
Executive officer salaries	264,390
Materials management wages	35,670
Factory depreciation	20,210

Prepare a factory overhead cost budget, separating variable and fixed costs. Assume that factory insurance and depreciation are the only fixed factory costs.

Sweet Tooth Company
Factory Overhead Cost Budget
For the Month Ending August 31
Variable factory overhead costs:
Manufacturing supplies	$
Power and light
Production supervisor wages
Production control wages
Materials management wages
Total variable factory overhead costs		$
Fixed factory overhead costs:
Factory insurance	$
Factory depreciation
Total fixed factory overhead costs
Total factory overhead costs		$

Answer 1

Flexible selling and administrative expense budget :

Total sales	115000	145000	175000
Variable expense
Sales commission	8050	10150	12250
Advertising expense	28750	36250	43750
Miscellaneous administrative expense	3450	4350	5250
Customer support expense	4600	5800	7000
Total variable cost	44850	56550	68250
Fixed cost
Miscellaneous administrative expense	1850	1850	1850
Office salaries expense	17000	17000	17000
Customer support expense	2600	2600	2600
Research and development expense	5750	5750	5750
Total fixed cost	27200	27200	27200
Total selling and administrative expense	72050	83750	95450