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Sales Budget

Sales Budget is one of the important functional budget. Sales estimate is the
commencement of budgeting may be made in quantitative terms. Sales budget is
primarily concerned with forecasting of what products will be sold in what
quantities and at what prices during the budget period. Sales budget is prepared by
the sales executives taking into account number of relevant and influencing factors
such as :
(1) Analysis of past sales (Product wise; Territory wise, Quote wise).
(2) Key Factors.
(3) Market Conditions.
(4) Production Capacity.
(5) Government Restrictions.
(6) Competitor's Strength and Weakness.
(7) Advertisement, Publicity and Sales Promotion.
(8) Pricing Policy.
(9) Consumer Behaviour.
(10) Nature of Business.
( 11 ) Types of Product.
(12) Company Objectives.

(13) Salesmen's Report.

(14) Marketing Research's Reports.
(15) Product Life Cycle.

Production Budget
Production budget is usually prepared on the basis of sales budget. But it also
takes into account the stock levels desired to be maintained. The estimated
output of business firm during a budget period will be forecast in production
budget. The production budget determines the level of activity of the produce
business and facilities planning of production so as to maximum efficiency. The
production budget is prepared by the chief executives of the production
department. While preparing the production budget, the factors like estimated
sales, availability of raw materials, plant capacity, availability of labour, budgeted
stock requirements etc. are carefully considered.

Cost of Production Budget
After Preparation of production budget, this budget is prepared. Production Cost
Budgets show the cost of the production determined in the production budget. Cost

Direct labor budget is a component of master budget. Overheads may be further subdivided in to fixed. It is prepared after the preparation of production budget because the budgeted production in units figure provided by the production budget serves as starting point in direct labor budget. EOQ etc. Therefore separate budgets required for each item.e. It helps the management to plan its labor force requirements. labour and overheads. Direct Labor Budget Direct labor budget shows the total direct labor cost and number of direct labor hours needed for production. Material Purchase Budget The different level of material stock are based on planned out. (4) Different stock levels. Because it breaks up the cost of each product into three main elements material.. it is necessary to considered the requirement of materials to carryout the production activities. (7) Price trend in the market. variable and semi-fixed overheads. seasonal or otherwise. (8) Company's stock policy etc. the following factors to be considered carefully: (1) Estimated sales and production. (5) Availability of raw materials.of Production Budget is grouped in to Material Cost Budget. Once the production budget is prepared. (3) Expected changes in the prices of raw materials. Material Purchase Budget is concerned with purchase and requirement of direct materials to be made during the budget period. Following are the calculations involved in the direct labor budget: . Labour Cost Budget and Overhead Cost Budget. i. (2) Requirement of materials during budget period. While preparing the materials purchase budget. (6) Availability of financial resources.

electricity and gas for the factory. supervisors in the factory. and manufacturing overhead be considered as the cost of products for valuing inventory and for determining the cost of goods sold.) Examples of manufacturing overhead include the depreciation or the rent on the factory building.Planned Production in units × Direct Labor Hours Required per Unit = Budgeted Direct Labor Hours Required × Cost per Direct Labor Hours = Budgeted Direct Labor Cost Manufacturing overhead budget Manufacturing overhead (also known as factory overhead. are not product costs and are not inventoriable. (Expenses that are outside of the factory. factory burden. This is a challenging task because there may be no direct relationship. indirect factory supplies. such as selling. depreciation on the factory equipment. manufacturers. retailers and service providers) before the preparation of budgeted income statement. . It is a component of master budget and it is prepared by all types of businesses (i. the property tax on the factory building is based on its assessed value and not on the number of units produced. Yet the property tax must be assigned to the units manufactured. (For example. direct labor.) Selling and Administrative Expense Budget Selling and administrative expense budget Selling and administrative expense budget is a schedule of planned operating expenses other than manufacturing costs. etc. This is the reason that manufacturing overhead is often classified as an indirect cost. accountants are faced with the task of assigning or allocating overhead costs to each of the units produced.e. factory maintenance employees. They are reported as expenses on the income statement in the accounting period in which they occur. the factory quality control department. Usually it is divided in two sections: the selling expenses and the administrative expenses. Generally accepted accounting principles require that cost of direct material cost. It includes the costs incurred in the factory other than the costs of direct materials and direct labor. production overhead) involves a company's factory operations. Because manufacturing overhead is an indirect cost. general and administrative expenses.

. For example sales commission vary with number of units sold. For example sales commission and freight cost on sales are variable selling expenses where as sales salaries are fixed selling expenses. Dividend Payable etc.Both selling expenses and administrative expense may be fixed or variable (see cost behaviour). The estimated Cash Receipts include: (1) Cash Sales (2) Credit Sales (3) Collection from Sundry Debtors (4) Bills Receivable (5) Interest Received (6) Income from Sale of Investment (7) Commission Received (8) Dividend Received (9) Income from Non-Trading Operations etc. The cash budget also called as Functional Budget. Master Budget . therefore an accurate selling and administrative expenses budget can be made by using activity based costing. cash is required for the purpose to meeting its current cash obligations. Cash budget is the most important of all the functional budget because. entertainment expenses with number of employees in the organization etc. Different variable selling and administrative expenses vary with different types activities. Cash Budget This budget represent the anticipated receipts and payment of cash during the budget period. Therefore. The estimated Cash Payments include the following : (1) Cash Purchase (2) Payment to Creditors (3) Payment of Wages (4) Payments relate to Production Expenses (5) Payments relate to Office and Administrative Expenses (6) Payments relate to Selling and Distribution Expenses (7) Any other payments relate to Revenue and Capital Expenditure (8) Income Tax Payable. a concern fails to meet its obligations. Similarly depreciation and rent on office building are fixed administrative expenses whereas office supplies and utilities expense are variable administrative expenses. If at any time. this budget is prepared on the basis of detailed cash receipts and cash payments. it will be technically insolvent.

which is finally approved. adopted and employed. The ICMA England defines a Master Budget as "the summary budget incorporating its functional budgets. the budget committee will prepare a Master Budget for the target of the concern. budgeted balance sheet. This budget is also helpful in coordinating activities of various functional departments. Accordingly a budget which is prepared incorporating the summaries of all functional budgets." The Master Budget represents the activities of a business during a profit plan. It comprises of budgeted profit and loss account. sales and costs.When the functional budgets have been completed. budgeted production. .