Selling Expenses Budget
Selling Expense Budget is the estimated amount spent on selling expenses that will incur in one accounting period. Besides the manufacturing cost, the company will spend on the selling and administrative expenses which are not dependent on the production units. They are mostly the fixed cost that will be paid based on a monthly basis.
Selling expenses are the cost related to marketing and getting the product to target customers. They are the expense for the sales department such as salary, commission expenses, advertising, and other marketing campaigns.
It is one part of the master budget that supports the company’s main goal. It must support the master plan in order to ensure that the target profit is met.
Selling Expenses Budget Example
For example, the company is preparing next year’s budget which consists of the target net profit and sale volume. Sale department will responsible for selling expenses budget such as:
- Advertising budget which should reflect a sale target.
- Promotional budget: the amount which response to new products announced and new market expansion. It can be related to the new product launch or the marketing strategy.
- Commission expense: this should be based on the percentage of sale volume. The percentage will depend on the company policy. It is considered a variable expense as it will change depending on the sale quantity.
- Salary: The budget should include the expected salary for the new staff in case the target sale requires more people and it should include the increment too. The salary expense is the fixed cost that company pays to the employees regardless of the sales quantity.
These are the budget for selling expenses which should be put under the sales department.
Prepare Selling Expense Budget
Selling expense is a part of the income statement budget. The selling expense budget will reduce the profit of the company. The company needs to make a proper budget as it will impact the target net income.
The company needs to make enough selling expenses to achieve the target sales. We need to promote the product to increase the sale. Without proper estimation of the selling expense, we may face a huge expense that will reduce the profit.
Selling expenses are usually prepared by the head of the marketing department. The company has enough experience regarding the connection between the selling expense and the sale amount. It is different from one company to another. Some companies’ sale requires a certain percentage of the expense. While other companies do not depend on the selling expense to generate a sale. If the company wants to double the revenue, it may require to double the selling expenses.
To prepare the selling expense budget, we have to understand all components included. Moreover, we have to understand each account’s characteristics whether it is fixed or variable cost.
For the fixed cost, it will remain the same within the accounting period. It will not change depending on the production or sale volume.
The variable cost will change depending on the sale volume. The cost will remain the same per unit, so the total will change based on the sale volume.
Company ABC is preparing the selling expense budget for the upcoming year. The selling expense includes the following accounts:
- The commission is $ 0.2 per unit sold
- The salary for marketing staff is $ 30,000 per month
- Promotional expense is estimated to be around 5% of the total sale amount
- The campaign budget: is estimated to be around $ 50,000 for the next year.
The company is planning to sell 500,000 units of product which are equal $ 5,000,000. Please prepare the selling budget base on the above assumption.
In order to prepare the selling expense budget, we have to calculate each account as follows.
- Company has to pay the commission $ 0.2 per units so they have to pay $ 100,000 for the commission to sell 500,000 units ($ 100,000 = 500,000 units x $ 0.2).
- The salary for marketing staff is $ 30,000 per month, it will be $ 360,000 for the whole year ($ 30,000 x 12 months).
- Promotional expense is expected to be 5% of the total sale. It would be equal to $ 250,000 ($ 5,000,000 x 5%)
- The company expects to spend $ 50,000 on the digital marketing campaign.
After these calculations, we can come up with the following budget:
|Salary for marketing department
|Digital Marketing Campaign
Based on the historical data and budgeted sales, company ABC needs to prepare the selling expense base on the above figures.
Selling expenses are very important for the business to achieve a certain level of sales. The company has to prepare a proper budget to estimate the expense required. Moreover, they have to prepare enough cash as well. These are the expenses that are expected to happen before the sale, so we cannot use the cash collected from customers.