MM Co. predicts sales of $40,000 for May. MM Co. pays a sales manager a monthly salary of $3,900 plus a commission of 7% 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 9%. In addition, MM’s shipping costs are predicted to decrease from 5% of sales to 4% of sales.Compute (1) budgeted sales and (2) budgeted selling expenses for May assuming MM switches to this more sustainable packaging.

The correct answer for option (1) is $43,600 and for option (2) is $8,696.

Explanation:

According to the scenario, the given data are as follows:

Sales for may = $40,000

Increase in sales of may = 9%

Sales manager salary = $3,900

Commission of sales = 7%

Shipping cost = 4%

(1). So, budgeted sales for may can be calculated as:

Budgeted sales for May = $40,000 + ( $40,000 × 9%)

= $40,000 + $3,600

= $43,600

(2). Budget selling expenses can be calculated as :

Budget selling expense = Sales manager salary + ( Commission on budget sales) + ( shipping cost on budget sales)

= $3,900 + ( $43,600 × 7%) + ( $43,600 × 4%)

= $3,900 + $3,052 + $1,744

= $8,696