Fashion a Selling and Administrative Budget as Part of Your Master Budget
Sales don't happen by themselves; instead, you need a sales force, paid with a combination of salaries and commissions. The selling and administrative expense budget predicts the amount of selling and administrative expenses (abbreviated S&A) needed to generate the sales forecasted in the sales budget.
You may also have to pay freight to ship goods to customers. And then you’ve got advertising, office salaries, and all the costs that come with running a sales office. To prepare the S&A budget, you need detailed information about the company’s S&A; you then divide S&A costs into fixed and variable components.
Forever Tuna plans to sell 22,000 cases of product, as projected by the Sales department.
Suppose an account analysis indicates that Forever Tuna has variable S&A costs of $5 per unit. The company pays fixed S&A costs equal to $90,000 per year ($22,500 per quarter). The following figure shows how to combine fixed and variable S&A expenses to create an S&A budget.
The S&A budget indicates that Forever Tuna’s managers expect to pay $200,000 worth of S&A expenses next year.