SPU, Ltd., has just received its sales expense report for January, which follows. Item AmountSales commissions $370,500Sales staff salaries 92,400Telephone and mailing 43,000Building lease payment 60,000Utilities 17,100Packaging and delivery 82,000Depreciation 36,750Marketing consultants 52,190You have been asked to develop budgeted costs for the coming year. Because this month is typical, you decide to prepare an estimated budget for a typical month in the coming year and you uncover the following additional data:1. Sales volume is expected to increase by 14 percent.2. Sales prices are expected to decrease by 10 percent.3. Commissions are based on a percentage of sales revenue.4. Sales staff salaries will increase 4 percent next year regardless of sales volume.5. Building rent is based on a five-year lease that expires in three years.6. Telephone and mailing expenses are scheduled to increase by 8 percent even with no change in sales volume. However, these costs are variable with the number of units sold, as are packaging and delivery costs.7. Utilities costs are scheduled to increase by 2 percent regardless of sales volume.8. Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $57,000 in furniture that will be received at the start of next year and will be depreciated over a 10-year life using the straight-line method.9. Marketing consultant expenses were for a special advertising campaign that runs from time to time. During the coming year, these costs are expected to average $64,500 per month. Required:Prepare a budget for sales expenses for a typical month in the coming year.

                                Report for January    Sales Expense Budget

Item                                    Amount                Amount

Sales commissions         $370,500             $380,133

Sales staff salaries              92,400                92,096

Telephone and mailing      43,000                 52,942

Building lease payment     60,000                60,000

Utilities                                  17,100                  17,442

Packaging and delivery     82,000                93,480

Depreciation                      36,750                 37,225

Marketing consultants       52,190                64,500

Total Sales Expenses  $753,940             $797,818

Explanation:

1. Sales volume is expected to increase by 14 percent.

2. Sales prices are expected to decrease by 10 percent.

3. Commissions are based on a percentage of sales revenue.

Sales Commissions = $380,133 ($370,500 x 1.14 x 0.9)

4. Sales staff salaries will increase 4 percent next year regardless of sales volume.

Sales staff salaries = $96,096 ($92,400 x 1.04)

5. Building rent is based on a five-year lease that expires in three years.

6. Telephone and mailing expenses are scheduled to increase by 8 percent even with no change in sales volume. However, these costs are variable with the number of units sold, as are packaging and delivery costs.

Telephone and mailing  =    $52,942 ($43,000 x 1.08 x 1.14)

Package and delivery = $93,480 ($82,000 x 1.14)

7. Utilities costs are scheduled to increase by 2 percent regardless of sales volume.

Utilities = $17,442 ($17,100 x 1.02)

8. Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $57,000 in furniture that will be received at the start of next year and will be depreciated over a 10-year life using the straight-line method.

Previous depreciation = $36,750

Current year's addition          475 ($57,000/10 years/12 months)

Total for the month       $37,225

9. Marketing consultant expenses were for a special advertising campaign that runs from time to time. During the coming year, these costs are expected to average $64,500 per month.

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