ACTIVITY-BASED BUDGET Suppose Gene determines that next years sales division activities include the following: Researchresearching current and future conditions in the industry Shippingarranging for shipping of mattresses and handling calls from purchasing agents at retail stores to trace shipments and correct errors Jobberscoordinating the efforts of the independent jobbers who sell the mattresses Basic adsplacing print and television ads for the sleepeze and plushette lines Ultima adschoosing and working with the advertising agency on the ultima account Office managementoperating the sales division office The percentage of time spent by each employee of the sales division on each of the above activities is given in the following table: Gene Research Assistant Administrative Assistant Research % 75% % Shipping 30% % 20% Jobbers 15% 10 20% Basic ads % 15% 40% Ultima ads 30% % 5% Office management 25% % 15% Additional information is as follows: a. Depreciation on the office equipment belongs to the office management activity. b. Of the $21,000 for office supplies and other, $5,000 can be assigned to telephone costs, which can be split evenly between the shipping and jobbers activities. An additional $2,400 per year is attributable to Internet connections and fees, and the bulk of these costs (80 percent) are assignable to research. The remainder is a cost of office management. All other office supplies and costs are assigned to the office management activity. Required: 1. Prepare an activity-based budget for next year by activity. Use the expected level of sales activity. 2. On the basis of the budget prepared in Requirement 1, advise Gene regarding actions that might be taken to reduce expenses.
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