Understand The Sales Budget & Some Salient Points

November 12th, 2007 /

The Sales Budget is the first budget prepared. It is derived from the sales forecast (estimate of sales revene for the budget period).Salient points about the Sales Budget:

The formula is simple namely Sales Forecast=Quantities forecast X Selling prices

It has a detailed breakdown by product,area,timing, volume and value. The detailed breakdown is to enable the preparatin of production budget as well as the company’s cash budge.

In preparing the budget,the sales personnel may rely on the following:

Salesmen’s reports where the salesmen are in direct contact with the customers and are therefore able to prepare detaied estimates of sales for the budgeted period
Market survey: some companes employ market researchers to anayze the demand for their products;
General business conditions: a political social, economic or technological change must be considered as it may affecthe demand for their products
Company’s policy: any change in company’s policy relating to the products sold must be considered.

Important to identify the principal budget factor because it will be crucial in the preparation of the sales budget. For example, if the plant capacity is incapable of producing the expected volume of sales then the sales budget must be determined by output.