Chicago Corporation has just received its marketing expense report for July, which follows.
Item Amount
Sales Commissions ............................................................... $140,000
Sales Staff Salaries.................................................................... 60,000
Telephone and Mailing.............................................................. 16,000
Building Lease Payment .......................................................... 20,000
Heat, Light, and Water ............................................................. 5,000
Packaging and Delivery........................................................... 28,000
Depreciation ........................................................................... 15,000
Marketing Consultants............................................................. 20,000
You have been asked to develop budgeted costs for July of next year. Here are additional data relevant to July of next year:
_ Sales volume is expected to increase by 5 percent.
_ Sales prices are expected to increase by 10 percent.
_ Commissions are based on a percentage of sales revenue.
_ Sales staff salaries will increase 4 percent next year regardless of sales volume.
_ 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.
_ Building rent is based on a five-year lease that expires in three years.
_ Heat, light, and water are scheduled to increase by 12 percent regardless of sales volume.
_ Packaging and delivery vary with the number of units sold.
_ Depreciation includes furniture and fixtures used by the sales staff. The company has just acquired an additional $1,900 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.
_ Marketing consultant expenses were for a special advertising campaign that runs from time to time. During the coming year, the costs are expected to average $35,000 per month.
Prepare a budget for marketing expenses for July in the coming year. Management hopes to keep the total marketing expense budget under $350,000 in Year 2. Based on your budget, are the expected marketing expenses for Year 2 under $350,000?
If not, which expenses are budgeted to increase the most?