2. 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.
3. 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.
4. 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.
6. 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.
7. 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
For instance, management will most likely consult with the sales department or salesmen to establish a reasonable sales goal for the future year. The individual sales personnel have more experience and more knowledge of current trends as well as customer territory than the upper level management does. After management has gathered information from various departments, a sales budget can be drafted.