7 Sales Budget Final

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Sales udget



Budgeting Basics

• Budget

– formal written statement of management’s plans

for a specified future time period, expressed in

financial terms.

a) provide historical data on revenues, costs, and

expenses,

b) express management’s plans in financial terms, and c) prepare periodic budget reports.



Benefits of Budgeting

a) All levels of management plan ahead.

b) Definite objectives for evaluating performance.

c) Early warning system for potential problems.

d) Coordination of activities within the business.e) Management awareness of the entity’s overall operations.

f) Motivates personnel throughout organization to meet

planned objectives.



Essentials of Effective Budgeting

• Sound organizational structure

– authority and responsibility for all phasesof operations are clearly defined.

• Based on research and analysis

– realistic goals that will contribute to thegrowth and profitability of the company.

• Directly related acceptance by all levelsof management.



Length of the Budget Period

• Most common budget period

– one year

– budget may be prepared for any period of time

• A continuous twelve-month budget

– drops the month just ended and adds a futuremonth

•

Annual budget – supplemented by monthly and quarterly budgets



The Budgeting Process

Budget committee

• Responsible for coordinating the

preparation of the budget• ordinarily includes

– the president, treasurer, chief accountant

(controller), and management personnel from

each major area of the company



Flow of Budget Data



Budgeting and Human Behavior

• Strong positive influence on a manager when:

– Each level of management is invited and encouraged

to participate in developing the budget.

– Criticism of a manager’s performance is temperedwith advice and assistance.

– Top management is sensitive to the behavioral

implications of its actions.



Budgeting and Long-Range Plans

• Budgeting

– the achievement of specific short-term goals

• Long-range planning

– identifies and selects strategies to achieve goals

and develop policies and plans to implement the

strategies

•

Long-range plans – contain less detail



Compared to budgeting, long-range

planning generally has the:

a. same amount of detail.b. longer time period.

c. same emphasis.

d. same time period.



Components of the Master Budget



Two Classes of Budgets in the Master

Budget

• Operating budgets

– the individual budgets that result in the

preparation of the budgeted income statement

• Financial budgets

– focus on the cash resources needed to fund

expected operations and planned capital

expenditures



Preparing the Operating Budgets:

Sales Budget

• The first budget prepared.

• Each of the other budgets depends on the sales

budget.• It is derived from the sales forecast. It represents

management’s best estimate of sales revenue for

the budget period.



Sales Budget

HAYES COMPANYSales Budget

For the Year Ending December 31, 2005 Quarter

1 2 3 4 YearExpected unit sales 3,000 3,500 4,000 4,500 15,000

Unit selling price $60 $60 $60 $60 $60

Total sales $180,000 $210,000 $240,000 $270,000 $900,000

The sales budget is prepared by multiplying the expected unit salesvolume for each product by its anticipated unit selling price.

For Hayes Company, sales volume is expected to be 3,000 units in the

first quarter with 500-unit increments in each succeeding year.

Based on a sales price of $60 per unit, the sales budget for the year

by quarters is shown below:



Production Budget

• Shows the units that must be produced to

meet anticipated sales.

• It is derived from the budgeted sales units

(per sales budget) plus the desired ending

finished goods less the beginning finished

goods units.

• The production requirement formula is:

Desired

Ending

Finished

Goods Units

Beginning

Finished

Goods UnitsBudgeted

Sales Units

Required

Production

Units



Production Budget

HAYES COMPANY

Production BudgetFor the Year Ending December 31, 2005

Quarter1 2 3 4 Year

Expected unit sales 3,000 3,500 4,000 4,500

Add: Desired ending

finished good units 700 800 900 1,000Total required units 3,700 4,300 4,900 5,500Less: Beginning finishedgoods units 600 700 800 900Required production units 3,100 3,600 4,100 4,600 15,400

20% of nextquarter’s sales

Expected 2006 1st Q sales5 000 units x 20%

Hayes believes it can meet future sales requirements by maintaining an

ending inventory equal to 20% of the next quarter’s budgeted sales volume.

The production budget is shown below.

Per sales

budget

7 Sales Budget Final

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