Posted: July 19th, 2016

What are loses?

Unit selling price $20
August actual sales $12,000
September actual sales 36,000
October estimated sales 30,000
November estimated sales 22,000
Total sales expected in the fiscal year $360,000
Exclusive of bad debts, total budgeted selling and general administrative expenses for the fiscal year are estimated at $61,500, of which $24,000 is fixed expense (which includes a $13,200 annual depreciation charge). The Botanica Company incurs these fixed expenses uniformly throughout the year. The balance of the selling and general administrative expenses varies with sales. Expenses are paid as incurred.

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A recent directive from Sandy Jensen, CEO of Duluth Manufacturing, had instructed each department to cut its costs by 10%. The traditional functional budget for the shipping and receiving department was as follows:
Salaries, four employees at $42,000 $168,000
Benefits at 20% 33,600
Depreciation, straight-line basis 76,000
Supplies 43,400
Overhead at 35% of direct costs 112,350
Total $433,350
Therefore, the shipping and receiving department needed to find $43,335 to cut. June Steele, a recent MBA graduate, was asked to pare $43,335 from the shipping and receiving department’s budget. As a first step, she recast the traditional budget into an activity-based budget.
Receiving 620,000 pounds $93,000
Shipping, 404,000 boxes 202,000
Handling, 11,200 moves 112,000
Record keeping, 65,000 transactions 26,350
Total $433,350