Question

You are the managerial accountant at Reliable Company. You have been assigned to support the marketing department and manage its master budget. The marketing department is responsible for the following:

• Managing the firm's marketing
• Hiring subcontractors
• Selling the consulting expertise to smaller outside firms

The department's expenses are as follows:

• Salaries and benefits of $48,000/month
• Web site operations of $21,000/ month
• Online advertising expenses of $15,000/month
• Miscellaneous expenses of $3,500/month

The sales forecast for its consulting services are as follows:

• April: $190,000
• May: $200,000
• June: $205,000

The department pays a sales commission of 5%, and this is paid in the following month. Subcontractor expenses are estimated at 45% of sales and are paid the month after they are billed. Consulting fees are collected 20% in the month of sale, 70% in the following month, and 10% in the second month following sale.

Refer to the attached schedules.

Develop a master budget for the marketing department.

This task includes the following:

• Completing the attached schedules for a master budget for the marketing department
• Supporting schedules for cash disbursements and collections

Analyze additional needs and resources based on those budgets. Make recommendations based on those budgets.

Respond to the following for this assignment:

• Develop the marketing department's master budget.
• Prepare a schedule of expected cash collections.
• Make recommendations based on those budgets.

Using the schedule template provided, complete the marketing department’s master budget and schedule of expected cash collections. In a 4-page report, provide your recommendations to support the marketing master budget. Submit both documents to complete the assignment. Please use APA formatting requirements for the word document.

Schedule:

Budget Data:

Reliable Company Marketing Department Master Budget
Data	April	May	June
Budgeted consulting revenues	$     190,000	$     200,000	$     205,000
Less: Sales commissions (5% of sales)	$          9,500	$        10,000	$        10,250
Less: Cost of sales (45% of sales)	$        85,500	$        90,000	$        92,250
Net consulting revenues	$        95,000	$     100,000	$     102,500
Accounts Receivable Collections
Month of sale	20%
Month following sale	70%
Second month following sale	10%
Monthly Budgeted Expenses
Salaries and benefits	$        48,000
Web site operations	$        21,000
Online advertising expenses	$        15,000
Other misc. expenses	$          3,500
Accounts Payable Payments
Month of sale	40%
Month following sale	60%
Accounts Payable
Online advertising expenses	$        15,000

Answer 1

Reliable Company Marketing Department Master Budget
Data	April	May	June
Budgeted consulting revenues	$   190,000	$ 200,000	$ 205,000
Less: Sales commissions (5% of sales)	$       9,500	$    10,000	$    10,250
Less: Cost of sales (45% of sales)	$     85,500	$    90,000	$    92,250
Net consulting revenues	$     95,000	$ 100,000	$ 102,500
Less: Monthly Budgeted Expenses
Salaries and benefits	$     48,000	$    48,000	$    48,000
Web site operations	$     21,000	$    21,000	$    21,000
Online advertising expenses	$     15,000	$    15,000	$    15,000
Other misc. expenses	$       3,500	$      3,500	$      3,500
Net Income for the Marketing Department	$       7,500	$   12,500	$   15,000

Calculation for cash collection from sales
Data	April	May	June
Budgeted consulting revenues	$ 190,000	$ 200,000	$ 205,000
Cash collection @ 20% in the month of sale, 70% in the following month, and 10% in the second month
20%	$    38,000	$    40,000	$    41,000
70%	$            -	$ 133,000	$ 140,000
10%	$            -	$            -	$    19,000
Total Cash collection from sales	$   38,000	$ 173,000	$ 200,000
Calculation for cash disbursements
Data	April	May	June	Remarks
Sales commissions (5% of sales)	$            -	$      9,500	$    10,000	this is paid in the following month
Subcontractor expenses	$    85,500	$    90,000	$    92,250	this is paid in the same month
Salaries and benefits	$    48,000	$    48,000	$    48,000	this is paid in the same month
Web site operations	$    21,000	$    21,000	$    21,000	this is paid in the same month
Other misc. expenses	$      3,500	$      3,500	$      3,500	this is paid in the same month
Online advertising expenses	$            -	$            -	$            -
40%	$      6,000	$      6,000	$      6,000	Month of sale
60%	$            -	$      9,000	$      9,000	Month following sale
Total Cash disbursements	$ 164,000	$ 187,000	$ 189,750

Reliable Company Marketing Department expected cash flow
Data	April	May	June
Total Cash collection from sales	$     38,000	$ 173,000	$ 200,000
Total cash receipts	$     38,000	$ 173,000	$ 200,000
Estimated cash payments for:
Sales commissions (5% of sales)	$              -	$      9,500	$    10,000
Subcontractor expenses	$     85,500	$    90,000	$    92,250
Salaries and benefits	$     48,000	$    48,000	$    48,000
Web site operations	$     21,000	$    21,000	$    21,000
Other misc. expenses	$       3,500	$      3,500	$      3,500
Online advertising expenses	$       6,000	$    15,000	$    15,000
Total cash payments	$   164,000	$ 187,000	$ 189,750
Cash increase or (decrease)	$ (126,000)	$ (14,000)	$   10,250

A marketing budget outlines all the money a business intends to spend on marketing-related projects over the quarter or year. Marketing budgets can include expenses such as paid advertising, sponsored web content, new marketing staff, a registered blog domain, and marketing automation software.

How to Create a Marketing Budget

Know your buyer's journey

Ask yourself these questions as you define your buyer's journey:

How do your leads and customers typically discover your products?

What do they need to know before they make a purchase?

How many site visits do you see per month?

How many leads are you generating per month, and how many of these convert to paying customers?

What is the cost of generating new leads and then converting them to customers?

What's the typical value/revenue of each lead?

Align your budget with your marketing goals.

What you spend and where you spend it will depend on what you're trying to accomplish.

So, when starting to create your marketing budget, make sure you're only spending money on the things required by your current marketing goals — goals set based on your audience and their journey from prospect to customer.

Beware of hidden costs.

One of the great advantages to having and maintaining a budget spreadsheet is that it helps you avoid those end-of-the-quarter or end-of-the-year freak-outs when you realize

Remember where your priorities lie.

Marketing is overflowing with add-ons and extras, upsells, and "premium" versions. One of the best ways to assess what's nice to have versus what's absolutely necessary is to (you guessed it) organize all of your expenses.

Spend your budget smartly.

When you open up these budget templates and check out all the various expenses detailed in them, don't fret if you can't tick every box. I'm not advocating for an "always spend more" approach to marketing.

Prepare to measure ROI.

When you put a certain amount of money into a certain area, you'll want to determine if your budgeting helped you or hurt you as you plan out future budgets. The best way to do this is by measuring ROI — or return on investment.

In the current example for Reliable Company Marketing Department Master Budget it seems that the cost of sales and operating expense is very high and a result of which the margin is very less.

When it comes to estimated cash flow, outflow is much higher than the inflow, which means there may be cash crunch for the company.