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	14% of sales
Advertising expense	20% of sales
Miscellaneous administrative expense	$5,000 per month plus 12% of sales
Office salaries expense	$29,000 per month
Customer support expenses	$13,000 per month plus 20% of sales
Research and development expense	$32,000 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:
	$	$	$
Total variable cost	$	$	$
Fixed cost:
	$	$	$
Total fixed cost	$	$	$
Total selling and administrative expenses	$	$	$

Answer 1

Flexible Selling and Administrative Expenses Budget For the Month Ending March 31

Total sales	$400000	$500000	$600000
Variable cost:
Sales commissions 14% of sales	56000	70000	84000
Advertising expense 20% of sales	80000	100000	120000
Miscellaneous administrative expense 12% of sales	48000	60000	72000
Customer support expenses 20% of sales	80000	100000	120000
Total variable cost	264000	330000	396000
Fixed cost:
Miscellaneous administrative expense	5000	5000	5000
Office salaries expense	29000	29000	29000
Customer support expenses	13000	13000	13000
Research and development expense	32000	32000	32000
Total fixed cost	79000	79000	79000
Total selling and administrative expenses	343000	409000	475000

• veriable cost varies according to production/sales
• fixedcost constant