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Building Financial Models with Microsoft® Excel®: A Guide for Business Professionals, Second Edition by K. Scott Proctor

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Chapter 4. Operating Budget—Operating Expenses

This chapter covers the second set of cost components for the Operating Budget, specifically the Operating Expenses Budget. Operating expenses represent those expenses required to run, or operate, a business. These expenses typically include items such as salaries, research and development, and rent. Specific operating expenses vary from business to business and I will cover the operating expenses incurred by Napavale in this chapter. Figure 4.1 highlights the separate operating expense components of the Operating Budget in the context of the Master Budget.

Please note that operating expenses are different from the expenses listed in the Purchases budget from Step 4B in Chapter 3. It is helpful to divide operating expenses into two categories: variable and fixed. Variable operating expenses are those expenses that are directly influenced by other drivers, such as sales volume. Fixed operating expenses are those expenses that are not affected by drivers such as sales volume. I cover the concept of fixed versus variable expenses in Chapter 11.

As in Chapters 2 and 3, I will be using the Assumptions and Dashboard worksheet for Napavale to introduce and focus on important assumptions underlying Napavale's financial model. The remainder of this chapter will cover the steps involved in the continued construction of the Assumptions and Dashboard worksheet and the operating expense elements of the Operating Budget.

STEP 5A: HEADCOUNT BUDGET

The ...

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