Page 197 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes
Example: 1. Sales commission
2. Agents commission

3. Carriage outward expenses.
The sales overhead budget is the statement of estimates of the various sales promotional expenses
not only based on the early/yester period sales promotional expenses but also on the sales of
previous years.

Example: The following expenses were extracted from the books of M/s Sudhir & Sons, to
prepare the sales overhead budget for the year 2008:

Advertisement on
Radio 2,000
Television 12,000
Salary to
Sales Administrative Staff 20,000
Sales force 15,000
Expenses of the sales department
Rent of the building 5,000
Carriage outward 5% on sales
Commission at sales 2%
Agents’ commission 6.5%
The sales during the period were estimated as follows:
80,000 including Agents Sales 8,000
1,00,000 including Agents Sales 10,500
Solution:
The most important step is to find out the variable portion of the sales overhead of M/s Sudhir
& Sons.
1. The calculation of salesmen’s commission is on the basis of the sales volume generated by
the salesmen force. The total sales volume consists of two different parts viz. Sales
contributed by the sales force and another one is contribution of the agents. To find out the
sales volume of the sales man, the portion of the agents’ sales volume should be deducted
from the total sales volume.
Sales Force’s/Men’s Volume = Total Sales Volume – Agent’s Sales Volume
Similarly, the agents’ sales volume can be computed.
2. From the early step, the amount of commission is to be computed from the volume of
sales.
3. Carriage outward should be computed on the volume of sales.
Sales Overhead Budget for the Year 2008

Estimated Sales 80,000 1,00,000
Level Level

Fixed Overhead
Advertisement on Radio 2,000 2,000
Advertisement on TV 12,000 12,000
Salary to Sales Admin. Staff 20,000 20,000 Contd...
Salary to Sales force 15,000 15,000
Expenses of the sales dept – Rent 5,000 5,000
LOVELY PROFESSIONAL UNIVERSITY
192 Total Sales Fixed Overhead (A) 54,000 54,000
Variable Overhead
Salesmen’s Commission 2% 1,440 10,290
Agents’ Commission 6.5% 520 682.5
Carriage outward 5% 4,000 5,000
Total Variable Overhead (B) 5,960 5682.5
Total Sales overhead(A+B) 59,960 59682.5