SALES

By- Grishma Chunekar

A Simple Definition of Budget

It is an estimate of income and expenditure for a set period of time.

Budgeting is simply balancing your expenses with your income.

Budgeting is important for any business.

Without a budget companies can't track process or improve performance.

Sales Budgeting

• A sales budget is management's estimate of sales for a future financial period.

• A business uses sales budgets to set department goals, estimate earnings and forecast production requirements.

• A company must know how many products it will sell and how much revenue will be generated before it can determine purchasing budgets, manufacturing budgets, and capital expenditure budgets.

• As every other budget is based on the sales budget. The sales budget is therefore called as the starting point for the master budget.

Factors Affecting Sales Budget

• Managers examine internal and external factors when creating a sales budget.

• Management carefully analyses economic conditions, market competition, production capacity, and selling expenses when developing the sales budget. All of these factors play an important role in the company's future performance.

• Management often utilizes employees in various departments to help with the sales and revenue estimates. –Eg. Sales Dept.

Planning Cycle of Sales Budgeting

Planning of Sales Budget

• Sales budgets are often divided into first, second, third and fourth fiscal quarter estimates.

• The critical components of a sales budget are estimated unit sales, price per unit and the allowance for discounts and returns.

• Estimated unit sales multiplied by the price per unit equals budgeted gross sales.

• Budgeted gross sales less estimated sales discounts and returns is the budgeted net sales for the period.

  Quarter 1 Quarter 2 Quarter 3 Quarter 4

Forecasted unit sales 5,500 6,000 7,000 8,000

x Price per unit $10 $10 $11 $11

Total gross sales $55,000 $60,000 $77,000 $88,000

- Sales discounts & allowances $1,100 $1,200 $1,540 $1,760

= Total net sales $53,900 $58,800 $75,460 $86,240

• The increased demand in the second half of the year will allow it to increase its unit price from Rs. 10 to Rs. 11.

• Also the company's historical sales discounts and allowances percentage of two percent of gross sales will continue through the budget period.

  Quarter 1 Quarter 2 Quarter 3 Quarter 4

Forecasted unit sales 5,500 6,000 7,000 8,000

x Price per unit (Rs.) 10 10 11 11

Total gross sales (Rs.) 55,000 60,000 77,000 88,000

- Sales discounts & allowances @2% (Rs.)

1,100 1,200 1,540 1,760

= Total net sales (Rs.)53,900 58,800 75,460 86,240

ABC Company's Sales Budget

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