Section 11

Objective 8

Sales and
Production Budget
Prepare Sales and Production Budgets
 Sales and
Production
Budgets
Sales and Production Budgets
The master budget:
• The master budget is a business’s one-year budget planning
document.
• It encompasses all other budgets.
• The document include budgets which shows
– expected future sales
– productions levels
– purchases, future expenses incurred
– capital investments
– loans to be acquired and repaid.
• Examples of budgets are cash, sales, purchases and many others.
Sales and
Production
Budgets
 Sales and
Production
Budgets
• Sales budget:
• A sales budget is a detailed schedule showing the expected
sales for the coming periods.
• It is expressed in both dollars and units of product.
• The budget is the key to the entire budgeting process.
• The sales budget is the first budget of the master budget
that is prepared for a firm.
 Sales and
Production
Budgets
Sales budget:
• The sales budget is derived from the sales forecast.
Sales forecast:
• Sales forecast is the projection of potential sales for
the industry and a company’s expected share of
sales.
• The formula to calculate sales for each period is:
Total Sales = Expected unit sales x Unit selling price
Sales budget template:
 Sales and
Production
Budgets
• Production budget:
– Terms:
– Production inputs are the components used
to produce goods or services.
• They are direct materials, direct labour and
the manufacturing overhead.
– Production costs (also known as
manufacturing cost or inventoriable costs)
• refers to the costs incurred in the manufacturing
of goods or services.
 Sales and
Production
Budgets

• Production budget:
– The production budget shows the units that must be
produced to meet anticipated sales
– This budget is prepared after the preparation of
the sales budget.
– The amount for the budget is derived from the the
sales budget and also the planned amount of finished
goods inventory to have on hand
 Sales and
Production
Budgets
• Production budget:
– In the budgeting process, after the production budget is
set, it becomes the key factor in determining the other
budgets.
– The formula to calculate the required production
units for each period is:
– Production units = Budgeted sales units + desired
ending finished goods units – beginning finished goods
units
 Sales and
Production
Budgets
• Production budget template:
 Sales and
Production
Budgets

• Look at the links on the next two slides and watch

the following videos on the sales and production
budgets
 Sales and
Production
Budgets

• Go to:
‘The Sales Budget’
Education Unlocked
https://www.youtube.com/watch?v=frCX_bsFsao

‘The Production Budget’

Education Unlocked
https://www.youtube.com/watch?
v=YwIUeaFkOS8