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. Compute budgeted sales and budgeted selling expenses for May assuming MM switches to this more sustainable packaging.

Short answer

The amount of budgeted sales is $32,400 and the amount of budgeted selling expenses is $5,700.

Step-by-step solution

Computation of budgeted sales

$\begin{array}{c}\mathbf{Budget}\mathbf{\$}\mathbf{ed}\mathbf{}\mathbf{sales}\mathbf{=}\mathbf{Predicted}\mathbf{}\mathbf{sales}\mathbf{}\mathbf{in}\mathbf{}\mathbf{May}\mathbf{\times }(\mathbf{1}\mathbf{+}\mathbf{Increases}\mathbf{}\mathbf{in}\mathbf{}\mathbf{percentage})\\ \mathbf{=}\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{\times }(\mathbf{1}\mathbf{+}\mathbf{8}\mathbf{\%})\\ \mathbf{=}\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{1}\mathbf{.}\mathbf{08}\\ =\$32,400\end{array}$

Computation of budgeted selling expenses

$\begin{array}{c}\mathrm{Budgeted}\mathrm{selling}\mathrm{expenses}=\mathrm{Sales}\mathrm{manager}\mathrm{salary}+\mathrm{Commission}+\mathrm{Shipping}\mathrm{costs}\\ \mathbf{=}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{000}\mathbf{+}(\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{6}\mathbf{\%})\mathbf{+}(\mathbf{\$}\mathbf{30}\mathbf{,}\mathbf{000}\mathbf{\times }\mathbf{3}\mathbf{\%})\\ =\$3,000+\$1,800+\$900\\ =\$5,700\end{array}$