Preparing a Selling & Administrative Expense Budget

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  • 0:02 A Wide-Ranging Budget
  • 0:38 What's Included in…
  • 1:45 How This Budget Is Put…
  • 2:35 Role in Other Budgets
  • 3:28 Lesson Summary
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Lesson Transcript
Instructor: Kevin Newton

Kevin has edited encyclopedias, taught middle and high school history, and has a master's degree in Islamic law.

Even though it has nothing to do with the actual manufacture of goods, a selling and administrative expense budget is often one of the largest budgets that a company produces. Learn more about selling and administrative expense budgets in this lesson.

A Wide-Ranging Budget

A great deal of planning goes into creating the goods that we purchase. Companies have to create many different budgets related to the manufacture of goods, ranging from sales and production budgets to direct materials and direct labor budgets. But what about expenses that a company incurs that are not directly related to manufacturing? These expenses are expressed in a selling and administrative expense budget. This wide-ranging budget accounts for many of the expenses of most companies. In this lesson, we'll see what goes into a selling and administrative expense budget, as well as how it influences other documents.

What's Included in This Budget?

Think about a typical business. There's a lot it has to pay for beyond labor and materials. It also has an accounting department, custodial team, advertising bills, and, of course, executives. Yes, the selling and administrative expense budget is where those cushy washrooms and corporate jets are accounted for. And there's more - the selling and administrative expense budget also covers any business insurance that the organization has, as well as rent or mortgage payments for service department sites. (Note that this budget does not include rent or mortgage for production facilities.) Additionally, the selling and administrative expense budget includes taxes, ranging from payroll to property. In short, anything that doesn't appear on the direct labor, direct materials, or materials overhead budget appears on the selling and administrative expense budget.

There is one exception, however. Any requirement for the company to keep cash on hand does not appear on the selling and administrative expense budget. After all, it is still on hand, meaning it hasn't yet been spent. As a result, it appears elsewhere in the company's paperwork.

How This Budget Is Put Together

So, how does a selling and administrative expense budget get put together? First, define a time frame. More often than not, these budgets are completed every quarter, so we'll use that as our standard. Next, make a list of all selling and administrative expenses incurred by the company during a given quarter. For example, let's say you're building a selling and administrative expense budget for a widget company. In the first quarter, it might spend $100,000 on advertising, $200,000 on accounting, $200,000 on janitorial services, $50,000 on utilities, and $400,000 on salaries. You would list all of these in your budget. Then, you would then add them up to get the total amount for the quarter in question. In our example, that would be a total of $950,000 per quarter.

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