The Operating Budgets: Marketing and Administrative Expense Budgets

The marketing expense budget can be prepared in much the same way as the overhead budget. That is, variable expenses and fixed expenses are budgeted and then totaled. Suppose that a company has variable marketing expense consisting of a sales commission equal to 3% of sales revenue. Sales revenue for the first three months of the quarter equals $566,400, $585,400, and $606,100. Fixed marketing expense consists of the following monthly costs: depreciation $3,870, salaries $11,520, and advertising $4,640. Prepare a marketing expense budget for the first quarter, by month and in total. Enter your sales commission rate in decimal rounded to two decimal places.

	January	February	March	Total
Budgeted sales revenue	$	$	$	$
x sales commission rate	x	x	x	x
Budgeted variable marketing expense	$	$	$	$
Fixed marketing expense:
Depreciation	$	$	$	$
Salaries
Advertising
Budgeted fixed marketing expense
Total budgeted marketing expense	$	$	$	$

The administrative budget is typically a listing of line item administrative costs and the expected amounts. Administrative costs do not vary with units produced or sold, nor with direct labor hours, so they are strictly fixed. Suppose a company has the following administrative expenses per month: salaries $20,940, depreciation $8,580, insurance $2,090, and training $1,180. Prepare an administrative expense budget for the first quarter, by month and in total.

	January	February	March	Total
Salaries	$	$	$	$
Depreciation
Insurance
Training
Total budgeted administrative expense	$	$	$	$

The Operating Budgets: the Budgeted Income Statement and Other Budgets

The operating budget culminates in the budgeted income statement. This statement pulls budgeted numbers from the earlier budgets into expected operating income for the year. The sales budget provides the budgeted sales revenue figure at the top of the income statement. Information from the production, purchases, direct labor and overhead budgets are used to calculate Cost of Goods Sold. The marketing and administrative expense budgets provide the total marketing and administrative expense.

The company may have other budgets - for example, a research and development budget. If so, the format for that would be modeled on the administrative expense budget. Merchandising and retail firms have simpler operating budgets since they purchase their goods for resale and do not produce them.