{"id":1074,"date":"2021-04-14T00:28:10","date_gmt":"2021-04-14T00:28:10","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=1074"},"modified":"2021-06-02T16:47:41","modified_gmt":"2021-06-02T16:47:41","slug":"selling-general-and-administrative-budget","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/chapter\/selling-general-and-administrative-budget\/","title":{"raw":"Selling, General, and Administrative Budget","rendered":"Selling, General, and Administrative Budget"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Prepare a selling, general, and administrative budget<\/li>\r\n<\/ul>\r\n<\/div>\r\n<img class=\"aligncenter wp-image-1444\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/04\/07221533\/Screen-Shot-2021-05-07-at-3.15.11-PM-300x260.png\" alt=\"A flowchart titled \u201cTypes of Budgets\u201d. The SG&amp;A budget is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&amp;A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&amp;A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the financial budget. There are also arrows pointing from the cost of goods sold budget and the SG&amp;A budget to the cash budget.\" width=\"500\" height=\"433\" \/>\r\nThe costs of selling a product are often closely related to the sales forecast. Generally, the higher the forecast, the higher the selling expenses and this relationship is also the inverse -- there is a relationship between the amount spent on marketing and sales revenue. More advertising may mean more sales, but that is not always the case. For instance, if the competition is robust, or if the market is saturated, increasing advertising and other marketing expenses may not increase sales. However, some costs have a direct relationship to sales. Commissions are a good example of this.\r\n\r\nAdministrative expenses are likely to be less dependent on the sales forecast because many of the items are fixed costs (e.g. salaries of administrative personnel and depreciation of administrative buildings and office equipment). Managers must also estimate other expenses such as interest expense, income tax expense, and research and development expenses.\r\n\r\nFor GelSoft, the administration will look at selling, general, and administrative costs both historically and prospectively, applying cost increases and cost-cutting measures to the costs or using a zero-based budgeting process that looks at the budget for each year as if it was the first year, taking current and proposed costs and building the budget from scratch.\r\n\r\nFor instance, if the company has 7 full-time, non-commissioned sales staff making $50,000 each year, and plans to add 3 more during the year, the first two are hired April 1 and one more on July 1, gross sales salaries would be (7 * $50,000) + (2* $50,000 * \u00be) + ($50,000 * \u00bd) = $450,000.\r\n\r\nSimilarly, if the CEO makes $500,000 and the CFO makes $300,000 and they have three support staff each making $50,000, total general and administrative salaries would be $950,000. Rent, depreciation, and other expenses could be forecast using similar calculations based on contracts and commitments as well as planned expansion or contraction.\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>GelSoft\r\nSelling, General, and Administrative Budget<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Sales Salaries<\/td>\r\n<td class=\"r\">$\u00a0\u00a0\u00a0450,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>General and Administrative Salaries<\/td>\r\n<td class=\"r\">950,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Payroll Taxes and Benefits<\/td>\r\n<td class=\"r\">120,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Depreciation on Office Equipment<\/td>\r\n<td class=\"r\">100,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Rent and Property Taxes<\/td>\r\n<td class=\"r\">150,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Office Repairs and Maintenance<\/td>\r\n<td class=\"r\">50,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Miscellaneous Expenses<\/td>\r\n<td class=\"r\">30,000<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Total Selling, General, and Administrative Expenses<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a01,850,000<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\n&nbsp;\r\n\r\nBefore you move on to completing the operating budget from this information, check your understanding of the selling, general, and administrative budgeting process.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]220600[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Prepare a selling, general, and administrative budget<\/li>\n<\/ul>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-1444\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/04\/07221533\/Screen-Shot-2021-05-07-at-3.15.11-PM-300x260.png\" alt=\"A flowchart titled \u201cTypes of Budgets\u201d. The SG&amp;A budget is highlighted in yellow. At the top is the sales budget. The sales budget has two arrows pointing to the production budget and the SG&amp;A budget. The production budget has three arrows pointing to the materials budget, labor budget, and manufacturing overhead budget. Those three budgets are all pointing to the cost of goods sold budget. The sales, production, materials, labor, manufacturing overhead, cost of goods sold, and SG&amp;A budget boxes are all blue and there is a bracket labeling those as the operating budget. Below the operating budget is a horizontal line showing the capital expenditures budget in red on the left, and going to the right from there, an arrow pointing to the cash budget, with another arrow pointing to the budgeted income statement, and a final arrow pointing to the budgeted balance sheet. The cash budget, budgeted income statement, and budgeted balance sheet are all green and there is a bracket labeling those as the financial budget. There are also arrows pointing from the cost of goods sold budget and the SG&amp;A budget to the cash budget.\" width=\"500\" height=\"433\" \/><br \/>\nThe costs of selling a product are often closely related to the sales forecast. Generally, the higher the forecast, the higher the selling expenses and this relationship is also the inverse &#8212; there is a relationship between the amount spent on marketing and sales revenue. More advertising may mean more sales, but that is not always the case. For instance, if the competition is robust, or if the market is saturated, increasing advertising and other marketing expenses may not increase sales. However, some costs have a direct relationship to sales. Commissions are a good example of this.<\/p>\n<p>Administrative expenses are likely to be less dependent on the sales forecast because many of the items are fixed costs (e.g. salaries of administrative personnel and depreciation of administrative buildings and office equipment). Managers must also estimate other expenses such as interest expense, income tax expense, and research and development expenses.<\/p>\n<p>For GelSoft, the administration will look at selling, general, and administrative costs both historically and prospectively, applying cost increases and cost-cutting measures to the costs or using a zero-based budgeting process that looks at the budget for each year as if it was the first year, taking current and proposed costs and building the budget from scratch.<\/p>\n<p>For instance, if the company has 7 full-time, non-commissioned sales staff making $50,000 each year, and plans to add 3 more during the year, the first two are hired April 1 and one more on July 1, gross sales salaries would be (7 * $50,000) + (2* $50,000 * \u00be) + ($50,000 * \u00bd) = $450,000.<\/p>\n<p>Similarly, if the CEO makes $500,000 and the CFO makes $300,000 and they have three support staff each making $50,000, total general and administrative salaries would be $950,000. Rent, depreciation, and other expenses could be forecast using similar calculations based on contracts and commitments as well as planned expansion or contraction.<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>GelSoft<br \/>\nSelling, General, and Administrative Budget<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Sales Salaries<\/td>\n<td class=\"r\">$\u00a0\u00a0\u00a0450,000<\/td>\n<\/tr>\n<tr>\n<td>General and Administrative Salaries<\/td>\n<td class=\"r\">950,000<\/td>\n<\/tr>\n<tr>\n<td>Payroll Taxes and Benefits<\/td>\n<td class=\"r\">120,000<\/td>\n<\/tr>\n<tr>\n<td>Depreciation on Office Equipment<\/td>\n<td class=\"r\">100,000<\/td>\n<\/tr>\n<tr>\n<td>Rent and Property Taxes<\/td>\n<td class=\"r\">150,000<\/td>\n<\/tr>\n<tr>\n<td>Office Repairs and Maintenance<\/td>\n<td class=\"r\">50,000<\/td>\n<\/tr>\n<tr>\n<td>Miscellaneous Expenses<\/td>\n<td class=\"r\">30,000<\/td>\n<\/tr>\n<tr>\n<td>Total Selling, General, and Administrative Expenses<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a01,850,000<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>&nbsp;<\/p>\n<p>Before you move on to completing the operating budget from this information, check your understanding of the selling, general, and administrative budgeting process.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm220600\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=220600&theme=oea&iframe_resize_id=ohm220600\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-1074\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Selling, General, and Administrative Budget. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":364389,"menu_order":13,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Selling, General, and Administrative Budget\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-1074","chapter","type-chapter","status-publish","hentry"],"part":33,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1074","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/users\/364389"}],"version-history":[{"count":8,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1074\/revisions"}],"predecessor-version":[{"id":2002,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1074\/revisions\/2002"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/parts\/33"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapters\/1074\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/media?parent=1074"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=1074"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/contributor?post=1074"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/wp-json\/wp\/v2\/license?post=1074"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}