The sales budget impacts the selling and administrative expenses budget—increased sales might be dependent upon increased advertising in a new market area, which then adds costs to the selling expense budget. If the sales market is expanded, there may be a need to increase sales personnel, which also adds to budget costs. If there are increased sales and production, there may be a need to increase office staff to handle the additional accounting and analytical requirements. Therefore, this expense budget must be reviewed to determine the impact of the sales forecast.
The Unknown Comic pays a 5% commission to its sales representative. Selling expense information and administrative expense information is provided below. In this example all of the administrative expenses are fixed:
| Sales commission percent | 5% |
| Salary for sales manager for year | $25,000 |
| Other selling expenses for year | $9,000 |
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| Administrative expense |
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| Wages and salaries expense | $15,000 |
| Rent expense | $12,000 |
| Insurance expense | $4,500 |
| Depreciation expense | $500 |
| Supplies expense | $750 |
There would be separate budgets for some of the line items listed above.
Sales commissions for each quarter are calculated as follows:
| Sales Budget | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total for Year |
|---|---|---|---|---|---|
| Total sales in dollars | $54,000 | $36,000 | $45,000 | $60,000 | $195,000 |
| Sales Budget | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 | Total for Year |
|---|---|---|---|---|---|
| Selling expenses: |
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| Budgeted sales | $54,000 | $36,000 | $45,000 | $60,000 | $195,000 |
| Sales commission percent | 5% | 5% | 5% | 5% |
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| Sales commission expense | $2,700 | $1,800 | $2,250 | $3,000 |
$9,750
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| Sales salary |
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| $25,000 |
| Other selling expenses |
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| $9,000 |
| Total selling expenses |
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| $43,750 |
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| Administrative expenses: |
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| Wages and salary expense |
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| $15,000 |
| Rent expense |
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| $12,000 |
| Insurance expense |
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| $4,500 |
| Depreciation expense |
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| $500 |
| Supplies expense |
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| $750 |
| Total administrative expense |
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| $32,750 |
| Total selling and administrative expenses |
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| $76,500 |
The budgeted totals for selling expenses, $43,750 and administrative expenses, $32,750 are needed for the budgeted income statement.