1.2.3. Budget for Operating Expenses
Once the sales budget has outlined the volume of sales that are required we need to set a budget for the expenses that will be incurred in producing that volume. The expenses budget separates expenses into two main areas: the first being factory expenses and the second being what we will call administration.
Factory, or operational costs, include such things as the components and supplies used to produce the product, or services we provide. The raw materials used in production are called inventory. The sales budget provides an indication of the inventory that will be required to meet the projected volume of production.
Factory costs will also include expenses such as power, machinery costs, and direct labour within the factory or operational side of the business itself.
The administration costs are non-operational costs and will include things such as marketing, human resources, rents and vehicle costs as well as general administration.
The following tables provide an example of typical business expenses:
Factory Expenses |
Year Ending June 20XX |
Manufacturing Supplies |
2,280,000 |
Product Components |
1,520,000 |
Machinery Maintenance |
750,000 |
Direct Labour |
885,000 |
Total |
5,435,000 |
Admin Expenses |
Year Ending June 20XX |
Marketing |
1,265,000 |
Human Resources |
1,250,000 |
Vehicle Costs |
250,000 |
General Overheads |
1,800,000 |
Total |
4,565,000 |
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