Selling and Administrative Budget

Learning Outcomes

  • Create a selling and administrative expense budget

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 from customers? First, we need to consider our expenses as a business. Our 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.  Therefore, we are going to make some assumptions so we can start work on this budget.

  1. Based on prior year’s actual expenses, let’s assume that the variable selling and administrative expenses are $5 per pair of shoes.
  2. Let’s assume that executive salaries, insurance, marketing, property taxes and depreciation are our fixed expenses.
  3. 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
Note: because depreciation expense is a non-cash expense, we can subtract it for our cash budget preparation, but we still need the number for our overall budget and financial statements to get an overall picture of the health of our company!

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.

Practice Questions