Nonmanufacturing Budget
Nonmanufacturing budgets are the budgets for the various areas of the company that are not involved in production. Those budgets include:
- Research and Development (R&D) Budget.
- Selling, Marketing and Distribution Budget, including sales supervisory salaries, sales commissions, selling expenses (such as travel and entertainment), advertising and promotion expenses, shipping-out expenses, telephone and wireless, office supplies, depreciation on office furniture and equipment used by sales and marketing personnel, and so forth.
- Administrative and General Expense Budget, including salaries and wages for management and support staff in administrative and staff departments (for example, accounting, legal, IT, and human resources), travel and entertainment, insurance, audit fees, telephone and wireless, office supplies, depreciation on office furniture and equipment used by administrative personnel, and so forth.
- Budgets for other expenses or sources of revenue.
Each of the individual budgets prepared for expenses should be broken down between variable and fixed costs. This breakdown is significant because at least in the short-term, fixed costs cannot be changed, but variable costs may be able to be changed if necessary. The breakdown is also necessary in order to develop a flexible budget, since in a flexible budget, variable items are adjusted to their equivalent values using actual activity while fixed items are unchanged in total. Also, the budgeted variable costs are needed to determine the budgeted contribution margin from each business unit. The contribution margin is total revenue minus all variable expenses.
The nonmanufacturing budgets need to be developed in enough detail to be useful. The assumptions underlying the values in them should be documented for reference. When budgets are revised during the budget development process, those documented assumptions will be needed for determining where changes can be made. For example, the budgeted employees and their salaries underlying the budgeted administrative salaries and wages expense should be documented. If it is necessary to revise budgeted administrative salaries and wages, it will be much easier to make that revision if detail is available about the assumptions made in developing the amounts.