What is Developing an Operating Budget?

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Developing an operating budget is the process of forecasting business revenue and expenses for a period, typically a year. It includes a number of smaller or sub-budgets that pull together various business areas or departments.

A sales budget is the first component of an operating custom writing paper. It lays out a projection of how many products and services your company will sell. This information helps prepare other components of the budget, including the cost of goods sold.

Sales Budget

A sales budget is used to estimate expected sales revenue for a specific period. It is typically based on past sales history, current market trends and other relevant factors. It is important to take into account any changes in the company that may impact incoming sales such as a change in the number of sales reps, new product launch or pricing.

It is also important to take into consideration any other business expenses that could increase or decrease a company’s sales such as marketing costs, shipping and handling fees, insurance premiums and possible interest charges on money borrowed to purchase necessary equipment. It is also wise to pad the sales budget with a little bit of profit margin to allow for unforeseen expenses.

For example, a bicycle manufacturer might bha fpx 4008 assessment 1 developing an operating budget in anticipated discounts of 3% of gross sales during the budget period. This is a good way to keep the company’s expectations in line with the actual numbers that will be received throughout the year.

Variable Costs

The next component of an operating budget is determining and listing the company's variable costs. These are expenses that change based on the amount of goods produced or services provided, increasing as production volume increases and decreasing as output decreases. The simplest example is the cost of raw materials for producing each unit of goods, but it also includes fees that vary depending on the number of units shipped such as credit card processing and shipping charges.

It is important to separate these from the fixed costs of the business, which remain the same regardless of the company's production levels such as rent and supervisor NURS FPX 6212 Assessment 1. Often, companies do not realize the full range of their variable costs and how they change with sales volumes because expense documentation, such as line items on company accounting reports or credit card statements, is incomplete or does not include explanations for each item spent. This information can help a company establish appropriate break-even levels for its products or services and price them accordingly.

Fixed Costs

The fixed costs of a business are the expenses that remain the same regardless of sales. These include expenses such as rent/mortgage, insurance, property taxes, debt service, utilities and depreciation.

For purposes of an operating budget, a small business will usually separate the overall list of expenses into fixed and variable costs, so that they can calculate percentages of these costs per unit of production. The business will then use this information to develop pricing strategies that maximize profitability and minimize costs.

For most businesses, the easiest way to determine all of your costs and expenses is to go through company records and credit card statements and identify all of the line NR 305 Week 6 that need to be included in a budget. Many companies struggle with this, since their expense management systems often don't provide the necessary documentation. This can lead to mistakes when creating an operating budget. Including detailed costs by department can help streamline this process and increase accountability within departments.

General and Administrative Expenses

Often, the first step in creating an operating budget is documenting costs and expenses. This is particularly true for new or small businesses. This involves re-documenting expense data from company records, such as accounting records and credit card statements, to determine what was actually spent during the period being budgeted for.

These expenses are known as selling, general and administrative expenses, or SG&A. Unlike cost of goods sold and fixed overhead, G&A expenses do not vary with sales volume. They include rent, utilities, insurance, back office compensation and supplies.

Other general expenses that are recurring are legal fees, such as lawyers and notary publics, as well as tax advice. Perks and fringe benefits like performance bonuses, paid sick leaves, annual party expenses and tools and supplies repairs are also considered SG&A expenses. Lastly, the company may pay operational fees to municipalities for services such as garbage disposal and recycling, water and waste management, as well as the costs of sewage treatment plants and biosolids management.

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