Question

MM Co. predicts sales of $30,000 for May. MM Co. pays a sales manager a monthly salary of $3,000 plus a commission of 6% of sales dollars. MM’s production manager recently found a way to reduce the amount of packaging MM uses. As a result, MM’s product will receive better placement on store shelves and thus May sales are predicted to increase by 8%. In addition, MM’s shipping costs are predicted to decrease from 4% of sales to 3% of sales.

Answer 1

Answer:

A) Budgeted sales with increase= $32400

B) Budgeted selling expenses = $5916

Explanation:

The requirement is as follows:

Assuming that MM Co. switches to this more suitable packaging, compute budgeted sales and selling expenses.

This is a simple question in which we have to incorporate increases/decreases in certain figures to give updated figures, because MM Co. wants to see likely financial benefits arising due to the switch.

A) Budgeted sales:

As a result of switching to this more suitable packaging MM Co expects sales to increase by 8% which means the new budgeted sales value will be 108% of current sales, see as follows;

Budgeted sales with increase= $30000× 108%

Monthly budgeted sales with increase= $32400

B) Budgeted selling expenses:

Now selling expenses include sales manager's monthly salary plus commission and shipping costs. Lets first incorporate changes in shipping costs and managers commission as follows:

New shipping costs= $32400× 3%

New shipping costs= $972

Because the decrease in shipping costs occurs after the switch therefore the new shipping costs will be computed on new sales value.

Managers' salary would remain same but the commission amount will increase as it's calculated on sales dollars, see as follows:-

Manager's commission = $32400× 6%

Manager's commission = $1944

Now lets substitute values to get budgeted selling expenses as follows:

Budgeted selling expenses = $3000 + $1944 + $972

Budgeted selling expenses = $5916