Managers must also estimate other expenses such as interest expense, income tax expense, and research and development expenses.įor GelSoft, the administration will look at selling, general, and administrative costs both historically and prospectively, applying cost increases and cost-cutting measures to the costs or using a zero-based budgeting process that looks at the budget for each year as if it was the first year, taking current and proposed costs and building the budget from scratch.įor instance, the company has seven full-time, non-commissioned sales staff making $50,000 each year and plans to add three more during the year. salaries of administrative personnel and depreciation of administrative buildings and office equipment). Commissions are a good example of this.Īdministrative expenses are likely to be less dependent on the sales forecast because many of the items are fixed costs (e.g. However, some costs have a direct relationship to sales. For instance, if the competition is robust, or if the market is saturated, increasing advertising and other marketing expenses may not increase sales. More advertising may mean more sales, but that is not always the case. This relationship is also the inverse-there is a relationship between the amount spent on marketing and sales revenue. ![]() Generally, the higher the forecast, the higher the selling expenses. The costs of selling a product are often closely related to the sales forecast. Prepare a selling, general, and administrative budget.
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