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Flexible Budget for Selling and Administrative Expenses for a Service Company Cloud Productivity Inc
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 15% of sales Advertising expense 20% of sales Miscellaneous administrative expense $6,500 per month plus 12% of sales office salaries expense $28,000 per month Customer support expenses $12,000 per month plus 20% of sales Research and development expense $30,000 per month Prepare a flexible selling and administrative expenses budget for March for sales volumes of $400,000, $500,000, and $500,000. (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 Sales commissions 60,000 75,000 90,000 Advertising expense 80,000 100,000 120,000 Miscellaneous administrative expense 54,500 X 66,500 X 78,500 X Customer support expenses 92.000 X 112,000 X 132,000 X 286,500 X Total variable cost Fixed cost: Miscellaneous administrative expense Office salaries expense Customer support expenses Research and development expense Total fixed cost s Total selling and administrative expenses
Expert Solution
| Flexible Selling and Administrative Expenses Budget | ||||||
| Total sales | $ 4,00,000.00 | $ 5,00,000.00 | $ 6,00,000.00 | |||
| Variable cost: | ||||||
| Sales commissions | $ 60,000.00 | $ 75,000.00 | $ 90,000.00 | |||
| Advertising expense | $ 80,000.00 | $ 1,00,000.00 | $ 1,20,000.00 | |||
| Miscellaneous administrative expense | $ 48,000.00 | $ 60,000.00 | $ 72,000.00 | |||
| Customer support expenses | $ 80,000.00 | $ 1,00,000.00 | $ 1,20,000.00 | |||
| Total variable cost | $ 2,68,000.00 | $ 3,35,000.00 | $ 4,02,000.00 | |||
| Fixed cost: | ||||||
| Miscellaneous administrative expense | $ 6,500.00 | $ 6,500.00 | $ 6,500.00 | |||
| Office salaries expense | $ 28,000.00 | $ 28,000.00 | $ 28,000.00 | |||
| Customer support expenses | $ 12,000.00 | $ 12,000.00 | $ 12,000.00 | |||
| Research and development expense | $ 30,000.00 | $ 30,000.00 | $ 30,000.00 | |||
| Total fixed cost | $ 76,500.00 | $ 76,500.00 | $ 76,500.00 | |||
| Total selling and administrative expenses | $ 3,44,500.00 | $ 4,11,500.00 | $ 4,78,500.00 |
Variable costs are calculated by applying the given percentages on sales.
For example:
| Sales commission at: | ||||
| Sales of $ 400000 | = | $ 400000 x 15% | ||
| = | $ 60,000.00 | |||
| Sales of $ 500000 | = | $ 500000 x 15% | ||
| = | $ 75,000.00 | |||
| Sales of $ 600000 | = | $ 600000 x 15% | ||
| = | $ 90,000.00 |
Fixed costs remained same at all sales level.
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