Ch. 6 Budgets
6.4 Operating Budget: Sales and Administrative
Learning Objectives
After finishing this section, students will be able to:
- Create a sales and administrative expense budget.
Sales and Administrative Expenses Budget
The direct materials budget, the direct labor budget, and the manufacturing overhead budget plan for all costs related to production, while the selling and administrative expense budget contains a listing of variable and fixed expenses estimated to be incurred in all areas other than production costs. While this one budget contains all nonmanufacturing expenses, in practice, it actually comprises several small budgets created by managers in sales and administrative positions. All managers must follow the budget, but setting an appropriate budget for selling and administrative functions is complicated and is not always thoroughly understood by managers without a background in managerial accounting.
If Big Bad Bikes pays a sales commission of $2 per unit sold and a transportation cost of $0.50 per unit, they can use these costs to put together their sales and administrative budget. All other costs are fixed costs per quarter: sales salaries of $5,000; administrative salaries of $6,000; marketing expenses of $4,000; insurance of $1,000; and depreciation of $2,000.
| – | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total |
|---|---|---|---|---|---|
| Budget Sales (Units) | 1,000 | 1,000 | 1,500 | 2,500 | 6,000 |
| Variable Expenses | |||||
| Sales Commissions | $2,000 | $2,000 | $3,000 | $5,000 | $12,000 |
| Transportation | 500 | 500 | 750 | 1,250 | 3,000 |
| Total Variable Expenses | 2,500 | 2,500 | 3,750 | 6,250 | 15,000 |
| Fixed Expenses | |||||
| Sales Salaries | 5,000 | 5,000 | 5,000 | 5,000 | 20,000 |
| Administrative Salaries | 6,000 | 6,000 | 6,000 | 6,000 | 24,000 |
| Marketing Expenses | 4,000 | 4,000 | 4,000 | 4,000 | 16,000 |
| Insurance Expense | 1,000 | 1,000 | 1,000 | 1,000 | 4,000 |
| Depreciation Expenses | 2,000 | 2,000 | 2,000 | 2,000 | 8,000 |
| Total Fixed Expenses | 18,000 | 18,000 | 18,000 | 18,000 | 72,000 |
| Total Selling and Admin Expense | $20,500 | $20,500 | $21,750 | $24,250 | $87,000 |
Only manufacturing costs are treated as a product cost and included in ending inventory, so all of the expenses in the sales and administrative budget are period expenses and included in the budgeted income statement and cash budget.
6.4a Example 
Friendship bracelets have S,G&A expense of administrative variable expenses of $6.40 and administrative fixed expenses of $85,000. If 12,000 units are produced in March, how much is the total S,G&A expense?
6.4a Homework
Echo Amplifiers prepared the following sales numbers for the first quarter of 20×8:
- January: 1,000 units
- February: 1,200 units
- March: 1,500 units
It also has this additional information related to its expenses:
| Information | Amount |
|---|---|
| Sales commission, per unit | $15 |
| Sales salaries per month | $5,000 |
| Delivery expense, per unit | $1.50 |
| Factory utilities, per month | $5,000 |
| Administrative salaries, per month | $20,000 |
| Marketing expenses, per month | $8,000 |
| Insurance expenses, per month | $11,000 |
| Depreciation expenses, per month | $9,000 |
Prepare a sales and administrative expense budget for each month in the quarter ending March 31, 20X8.
Licensing and Attribution:
Content on this page is adapted from the following openly licensed resource(s):
Principles of Accounting, Volume 2: Managerial Accounting by Mitchell Franklin, Patty Graybeal, and Dixon Cooper licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License
