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Budget Performance Reporting

The sales department of a cellular phone company pays its salespeople $1,500 per month plus 25 % of each new subscriber's first month's billing. A new subscriber's first-month bill averages $80. Salespeople work 160 hrs a month (four weeks at 40 hrs/wk). If salespeople work more than 160 hrs /mon, they receive $12/hr for hrs in excess of 160.
Sales leads for the sales department are generated in a variety of ways -- direct mailings to potential customers who then call to speak to a salesperson, lists of prospective customers purchased from outside marketing firms, and so forth. The manager of the sales department reviews potential leads and assigns them to particular salespeople who contact them. The manager of the sales department is expected to oversee the time spent by each salesperson per assigned lead and to approve overtime requests to work beyond the 40 hrs/wk. Each new customer added requires on average 2 hrs of salesperson time to make the sale.
Last month, the sales department was budgeted for eight full-time salespeople. However, because the a new ad campaign, an additional salesperson was hired and overtime was approved, bringing actual hrs worked up to 1,580. The department added 725 new customers.

a. Prepare a performance report comparing actual performance to budgeted performance using a static budget based on eight salespeople and no budgeted overtime.

b. Prepare a performance report comparing actual performance to budgeted performance using a flexible budget based on nine salespeople selling 725 new accounts.

c. Discuss when you would expect to see the report prepared in (a) used and when you would expect to see the report in (b) used.

Solution Preview

Please see the attached Excel spreadsheet. Assumptions: that the number of new ...

$2.19