Details:

As the manager of the marketing department, you are being asked for the first time to develop a department budget. The accounting department has supplied you with the following projected information about how this year, 20XX, will end up for your department's spending.

Before you begin the process, your manager and you have sat down to develop broad planning objectives for the upcoming year, which you will need to incorporate into the budget. These include

• a doubling of trade show spending.
• an increase of the sales force by 25%.
• an expected sales volume increase of 10%.
• an expected increase of 4% of all expenses due to inflation.
• no anticipated selling price changes for next year.

You need to do the following:

1. for each of the listed expenses:
   • identify whether you would treat them as a fixed or variable cost
   • explain the reasoning for your classification
2. based on the historical information and the planning you did for new marketing programs for the upcoming year, prepare a budget for the upcoming year by completing the table:

1.  
   1. In the 20XX+1 column, fill in budgeted figures.
   2. In the next column, when appropriate, adjust that amount for inflation.
   3. Complete the next column based on the projected volume increase.
   4. In the last column, briefly explain how you arrived at the budgeted figure.

Expense category

20XX projected

20XX+1 with plan changes

20XX+1 with inflation changes

20XX+1 with volume impact

Explanation

Sales force base salary

200,000

Sales force commission

200,000

Sales force benefits

60,000

Trade show space rental

50,000

Free coupon expense

40,000

Note:

Sales

2,000,000

2,200,000

Objective:

Understand how fixed and variable costs behave and how to use them to predict costs, analyze a mixed cost using the high-low method and prepare an income statement using the contribution format.

Understand why organizations budget and the processes they use to create budgets, and recognize situations that present potential ethical and legal issues and develop solutions for those issues.