Operating budget


The operating budget consists of a document that includes the ordinary income and expenses of a company.

In other words, it is a budget that helps us project the general activity of the company via income over sales and expenses over production costs, mostly.

Operating budget formula

The formula for this budget contains four basic sums in economic terms. These are sales, fixed costs, variable costs, and costs related to accounting revaluation techniques.

It should be taken into account that the accounting costs are those that come from one-off asset depreciations (the so-called accounting impairments) or periodic (that is, the accounting depreciations).

Advantages and disadvantages of the operating budget

On the one hand, some of the advantages that can be presented when using this budget can be:

  • Greater control over the origin of income and expenses.
  • Study of the annual evolution of certain key items of income and expenses.
  • Establishment of short and long-term goals in anticipated sales.

On the other hand, the most notable disadvantages of its use are:

  • The existence of a statistical and a subjective part in its elaboration.
  • Not having any of the factors involved in the formula controlled. Even fixed costs can change if the market situation requires it, either up or down.

Although the disadvantages are quite relative, it should also be taken into account that the establishment of objectives or goals, although they can have a positive impact on the company, must be careful not to fall into the trap of setting them excessively high.

Example of operating budget

Given a retail company that possesses the following income data on sales and expenses on fixed, variable and accounting costs, determine the operating result of the budget:

Simplified operating budget
+ Total revenue from ordinary sales750.000€
- Total fixed costs55.000€
- Total variable costs290.000€
- Total impairments and amortizations30.000€
- / + Total other attributable income and expenses0€
= Operating result375.000€

In this simplified budget we can see that one more factor has been included in the calculation of the operating result. This factor can serve as a ‘disaster drawer’ when we cannot classify it in any other factor or when, on the other hand, we want to isolate a series of income or expenses in order to have a more exhaustive control of these.

In the case that has been exposed, this factor does not play a leading role, but everything depends, as always, on the needs of the company and the type of activity or sector to which it belongs.

Sales budget

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