Sales Budget

Budgeting Basics
Budget
formal written statement of managements plans for a specified future time period, expressed in financial terms. a) provide historical data on revenues, costs, and expenses, b) express managements 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 entitys overall operations. f) Motivates personnel throughout organization to meet planned objectives.

Essentials of Effective Budgeting

Sound organizational structure
authority and responsibility for all phases of operations are clearly defined.

Based on research and analysis

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

Directly related acceptance by all levels of 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 future month

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 managers performance is tempered with 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.

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.

The Master Budget

A set of interrelated budgets that constitutes a plan of action for a specified time period. Developed within the framework of a sales forecast.

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 managements best estimate of sales revenue for the budget period.

Sales Budget
The sales budget is prepared by multiplying the expected unit sales volume 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:
HAYES COMPANY Sales Budget For the Year Ending December 31, 2005
Quarter 1 2 3 4 Year Expected 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

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 Units Required Production Units

Budgeted Sales Units

Production Budget
Hayes believes it can meet future sales requirements by maintaining an ending inventory equal to 20% of the next quarters budgeted sales volume. The production budget is shown below.

Per sales budget

HAYES COMPANY Production Budget For the Year Ending December 31, 2005
1 3,000 700 3,700 600 3,100 Quarter 2 3 3,500 4,000 800 4,300 700 3,600 900 4,900 4 4,500 1,000 5,500 Year

Expected unit sales Add: Desired ending finished good units Total required units Less: Beginning finished goods units Required production units

800 900 4,100 4,600 15,400

20% of next quarters sales

Expected 2006 1st Q sales 5,000 units x 20%