How to Prepare a Selling & Administrative Expense Budget - YouTube

Let's talk about a selling and  administrative expense budget.  

This example problem says Fulton company  has the following data for the first six  

months of 2020. We're told that in quarter  one we sell 15,000 units in quarter two we  

sell 20 1000 units. Then we have some  variable costs per dollar of sales.

So advertising will be four percent of our sales  dollars. Sales commissions will be 3% and delivery  

expenses will be 2%. Then we have some fixed costs  per quarter of sales salaries, depreciation and  

utilities. And then we're told our unit selling  price of $20. So we need to take that information  

and prepare a selling and administrative expense  budget by 4th for the first six months of 2020.

Now before we can actually prepare this budget,  we need to first figure out our sales in dollars  

for each of these quarters. So in quarter  one we sold 15,000 units multiply that by  

the unit selling price. That tells us that we  made $300,000 in sales in the first quarter.

Quarter two we sold 20,000 units. So we  had $400,000 in sales for quarter two.  

So finding those two amounts now will allow  us to determine our variable costs when we  

are actually preparing the budget. So  we'll have all that information in the  

upper left and this is what our selling and  administrative expense budget will look like.

So the first line is our budgeted sales in units.  So in quarter one that's 15,000 in quarter two,  

that's 20,000. Now we can move on to our  variable expenses. So advertising is 4% of  

our sales dollars. So that's why we found that  300,000 and 400,000 earlier in the problem.

So for quarter one we take 4% percent of  300000 and for quarter two we take 4% of  

400,000 and we get 12,000 in quarter  one and 16,000 in quarter two for our  

advertising expense. Now we wanna  add those together to show that for  

the first six months of the year we have  $28,000 worth of advertising expenses.

Now, sales commissions, that's gonna  be 3% of our sales dollars. So we take  

300,000 times 3% and 400,000 times 3% and  we get 9,012,000 as our sales commission  

amounts for the first two quarters,  we add those together and we see  

that in the first six months we'll  have $21,000 in sales commissions.

Now delivery expenses, those are gonna be 2%  of our sales dollars. So 300,000 times 0.02 and  

400,000 times 0.02, which will give us 6000 and  8000 and 14000 when you add those two together  

for the first six months of the year. So those  are each of our individual variable expenses.

Now the next line is our total variable. So we  wanna add up quarter ones, variable expenses,  

quarter two's variable expenses and  then the six month column as well. So  

in quarter one we have 27,000 dollars worth  of variable expenses. Quarter two is 36,000.  

And in the 1st 6 months of the year we're  expecting $63,000 worth of variable expenses.

Now we can move on to fixed expenses. So the first  one listed here, our sales salaries and we're told  

that that's gonna be 12,000 per quarter. So it's  12000 quarter 1, 12,000 and quarter 2. So when  

you add those two together, in the first six  months of the year, you will have $24000 worth  

of sales salaries, depreciation is 5000 per  quarter or 10,000 for the first six months.

And utilities is 1000 per quarter and 2000 for the  first six months. Now our total fixed expenses,  

we wanna add up our sales salaries, depreciation  and utilities for each quarter. And we see that  

it's $18,000 in quarter 1, $18,000 in quarter  two and 36,000 dollars in the first six months.

Now are very bottom line of this budget shows  are total selling and administrative expenses.  

So that's taking your total variable plus  your total fixed. So for the first quarter  

we'll take our $27,000 in our total variable  expenses plus our $18,000 in our total fixed  

to show that will have $45,000 worth of selling  and administrative expenses in quarter one.

Now, for a quarter two we take the  36000 that we find under the total  

variable plus the 18,000 for the total  fixed. And we have $54000 in selling and  

administrative expenses for a quarter  two. And then for the first six months  

we could take the 63,000 in our total  variable plus are 36,000 in total fixed.

Or we can add up the total selling and  administrative expenses for quarter one  

and quarter two so the 45,054,000 that we just  solved for either way. When you add those up,  

you will get $99,000 as your total selling and  administrative expenses for the first six months.