Selling and Administrative Expense Budget

06/04/2011 14:37

 

Selling and Administrative Expense Budget:

Learning Objectives:

  1. Define and explain selling and administrative budget.
  2. Prepare selling and administrative budget.

Definition and Explanation:

Selling and administrative expense budget lists the budgeted expenses for areas other than manufacturing. In large organizations this budget would be a compilation of many smaller, individual budgets submitted by department heads and other persons responsible for selling and administrative expenses. For example, the marketing manager in a large organization would submit a budget detailing the advertising expenses for each budget period.

Example:

Following is the selling and administrative expense budget for Hampton Freeze Inc. (See explanation of this budget)

 

Hampton Freeze Inc.
Selling and Administrative Expense Budget
For the Year Ended December 31, 2009

 

Quarter

 
  1 2 3 4 Year
Budgeted sales in cases (see sales budget) 10,000 30,000 40,000 20,000 100,000
Variable selling and administrative expenses per case $1.80 $1.80 $1.80 1.80 $1.80
  ----------- ----------- ----------- ----------- -----------
Budgeted variable expense $ 18,000 $54,000 $72,000 $36,000 $180,000
  ====== ====== ====== ====== ======
Budgeted fixed selling and administrative expenses:          
Advertising 20,000 20,000 20,000 20,000 80,000
Executive salaries 55,000 55,000 55,000 55,000 220,000
Insurance   1,900 37,750   39,650
Property taxes       18,150 18,150
Depreciation 10,000 10,000 10,000 10,000 40,000
  ------------ ------------ ------------ ------------ ------------
Total budgeted fixed selling and administrative exp. 85,000 86,900 122,750 103,150 397,800
  ------------ ------------ ------------ ------------ ------------
Total budgeted selling and administrative expenses 103,000 140,900 194,750 139,150 577,800
Less depreciation 10,000 10,000 10,000 10,000 40,000
  ------------ ------------ ------------ ------------ ------------
Cash disbursements for selling and administrative exp. $93,000 $130,900 $184,750 $129,150 $537,800
  ====== ====== ====== ====== ======

Explanation of Selling and Administrative Expense Budget for Hampton Freeze Inc.

Like the manufacturing overhead budget the selling and administrative expense budget is divided into variable and fixed cost components. In the above example the variable selling and administrative expense is $1.80 per case. Consequently, budgeted sales in cases for each quarter are entered at the top of the schedule. These data are taken from  thesales budget (see sales budget). The budgeted variable selling and administrative expenses are determined by multiplying the budgeted sales in cases by the variable selling and administrative expense per case. For example, the budgeted variable selling and administrative expense for the first quarter is $18,000 (10,000 cases × $1.80 per case). The fixed selling and administrative expenses (all given data) are then added to the variable selling and administrative expenses to arrive at the total budgeted selling and administrative expenses. Finally, to determine the cash disbursement for selling and administrative items, total budgeted selling and administrative expense is adjusted by adding back non-cash selling and administrative expenses (in this case, just depreciation).