Budgeting Basics and Beyond

8.16. Variances in Administrative Expenses

As business expands, there is a tendency for administrative expenses to increase proportionately and get out of line. However, central general and administrative expenses typically are of a fixed cost nature and hence there is less need to monitor these types of costs. Here comparison of budgeted to actual costs can be made quarterly or even yearly. These comparisons should be done by department or unit of responsibility. Suggested standards for administrative expenses follow.

Administrative Function	Unit of Standard Measurement
Handling orders	Number of orders handled
Billing	Number of invoices
Check writing	Number of checks written
Clerical	Number of items handled
Customer statements	Number of statements
Order writing	Number of orders
Personnel	Number of employees hired
Payroll	Number of employees

Selling and administrative variances for nonoperating items are the responsibility of top management and staff. Such items include taxes and insurance. Performance reports may be prepared for the administrative function, such as the salaries of top executives and general department service costs such as data processing. Performance measures also may be of a nonmonetary nature, such as the number of files processed, the number of phone calls taken, and the number of invoices written. Variances between the dollar and nondollar factors can be determined and analyzed.