The Budgets Process and

Components
 Master - budget
• Is a formal statement of management’s
expectation regarding sales, expenses,
volume, and other financial transactions
for the coming period.
• It consists basically of a pro forma income
statement, pro forma balance sheet, and
cash budget.
The budget is classified broadly
into two categories:

1. Operating budget; summarize the level

of activities such as sales, purchasing,
and production.
2. Financial budget; such as balance
sheets, income statements, and cash
flow statements, identify the expected
financial consequences of the activities
summarized in the operating budgets
Steps in Preparing an Operating
Budget
• Identify the Problems & uncertainties
• Obtain information
• Make predictions about the future
• Make decisions by choosing among
alternatives
• Implement the decision ,evaluate
performance
The Operating Budget consists of:
• Sales budget
• Production budget
• Direct materials budget
• Direct labor budget
• Factory overhead budget
• Selling and administrative expense budget
• Pro forma income statement
The Financial Budget consists of:
• Cash budget
• Pro forma balance sheet
 1. Sales budget:

• This budget displays the projected sales in

units and then multiplies the unit sales by
the sales price to determine sales
revenue. A sales budget is a detailed plan,
expressed in both units and dollars, that
identified expected product (or service)
sale for a future period.
 Example: (1)

Z Company sells three products:

Product (A) 1000 units, sale price 8 L.E.
Product (B) 900 units, sale price 10 L.E.
Product (C) 1500 units, sale price 8 L.E.
• Required:
Prepare the sales Budget.
• Exercise: (2)
• XYZ company manufactures Product
(A). Recently, the company began
selling that product, and the company
expects sales to increase compared
with the prior year. For the past year,
2010 unit sales were as follows:
First quarter 21.000
Second quarter 36.000
Third quarter 25.000
Fourth quarter 30.000
• Required:
• Assume that sales for each quarter in
2011 will be 30% higher than they were in
2010 and the selling price per unit is
20L.E. Prepare a sales budget.
• Exercise: (3)
• XYZ company manufactures Products (A)
(B) (C) . Recently, the company began
selling that products, and the company
expects sales and selling price per unit to
increase compared with the prior year. For
the past year, 2010 unit sales and selling
price per unit were as follows:
Product (A) (B) (C)
First quarter 15000 5000 21.000
Second quarter 20000 10000 36.000
Third quarter 10000 15000 25.000
Fourth quarter 25000 20000 30.000
• Product (A) 8 L.E.
• Product (B) 10 L.E.
Product (C) 8 L.E.
Required:
• Assume that sales for each quarter in 2011 will be
20% higher than they were in 2010 and the selling
price per unit will be 10% higher than they were in
2010
. Prepare a sales budget.