59 Selling and Administrative Budget
Learning Objectives
- Create a selling and administrative expense budget
So Hupana Running Company knows all about production, and we have a good handle on how many pairs of shoes we are going to make, and how much raw materials and overhead go into each pair. But how do we get those orders? Well, there are sales commissions, marketing plans, data entry personnel, insurance, property taxes and all the other stuff that goes into operating a business.
Some of these expenses are variable, like sales commissions, and data entry personnel, while other expenses, like insurance and property taxes happen no matter how many pairs of shoes we make or sell. These are our fixed expenses. So we are going to make some assumptions so we can start work on this budget.
- Based on prior year’s actual expenses, let’s assume that the variable selling and administrative expenses are $5 per pair of shoes.
- Let’s assume that executive salaries, insurance,marketing, property taxes and depreciation are our fixed expenses.
- All of the expenses are equally distributed over the four quarters of the year.
| Hupana Running Company Selling and Administrative Expense Budget | |||||
|---|---|---|---|---|---|
| Quarter | Q1 | Q2 | Q3 | Q4 | Total |
| Budgeted unit sales | 500 | 500 | 500 | 500 | 2000 |
| Variable selling and administrative expense per case | $5 | $5 | $5 | $5 | $5 |
| Variable selling and administrative expense-total | $2,500 | $2,500 | $2,500 | $2,500 | $10,000 |
| Fixed selling and administrative expense | |||||
| Marketing | $1,500 | $1,500 | $1,500 | $1,500 | $6,000 |
| Executive salaries | $5,000 | $5,000 | $5,000 | $5,000 | $20,000 |
| Insurance | $500 | $500 | $500 | $500 | $2,000 |
| Property taxes | $250 | $250 | $250 | $250 | $1,000 |
| Depreciation expense | $500 | $500 | $500 | $500 | $2,000 |
| Total fixed selling and administrative expenses | $7,750 | $7,750 | $7,750 | $7,750 | $31,000 |
| Total selling and administrative expenses | $10,250 | $10,250 | $10,250 | $10,250 | $41,000 |
| Less depreciation | $500 | $500 | $500 | $500 | $2,000 |
| Cash disbursements for selling and administrative expense | $9,750 | $9,750 | $9,750 | $9,750 | $39,000 |
What do you notice about our selling and administrative budget? First, we use the budgeted unit sales off of the sales budget we created first! So you can start to see how everything is tied together.
