SALES BUDGETING

Rajendra Sharma

SALES BUDGET

Estimate of an operating periods probable

rupee & volume sales and the likely selling
expenses.
A projection of what a sales program
means in terms of

Sales volume,
Selling expenses &
Net profits.

SALES BUDGET

Instrument of planning
Mechanism of control

The Planning Process

Strategic
Planning

Tactical
Planning
Budget

PLANNING/FORECASTING/BUDGETING SEQUENCE

Marketing Plan

Sales Forecasts

Sales Force Budget

The Master Budget: Graphic

Sales Control
Significant Deviations From Planned
Performance Are Associated With
Poorly conceived budgets.
Business conditions may have
changed.
Managers that have done a particularly
good or bad job managing operations.

Budgetary Control

Budgets as A Standard For

Evaluation
1. Budgets facilitate control by providing a
standard for evaluation.
2. The standard is the budgeted amount against
which actual results are compared.
3. Differences between budgeted and actual
amounts are called budget variances.
4. Material differences between actual and
budgeted should investigated.

Static and Flexible Budgets

A static budget is not adjusted for the
actual level of production and is not
suited for performance measurement.
A flexible budget is a set of budget
relationships that can be adjusted to
various activity levels. It is suited for
performance measurement.

Conflict in Planning and

Control Uses of Budgets
1. Conflict is inherent in the planning and
control uses of budgets.
2. Result is that managers:
a. Pad their budgets.
b. Shift income between accounting
periods to increase their compensation.

Evaluation, Measurement, and

Management Behavior
1. Managers pay close attention to how
their performance is measured and
evaluated.
2. Budgets are usually measured in
Rupees.
3. You Get What You Measure!

Flexible Budgets

Projects budget data for

various levels of activity
Is essentially a series of static
budgets at different activity
levels
Recognizes that the budgetary
process is more useful if it is
adaptable to changes in
operating conditions

Management by Exception
Top managements review of a budget report is
focused on differences between actual and
expected results
Top management can focus on problem areas
Top management will investigate only material
and controllable exceptions where

Materiality is expressed as a percentage difference from budget,

and
Controllability relates to those items controllable by the manager

Responsibility Accounting
vs. Budgetary Control

A distinction is made between

controllable and noncontrollable
items, and
Performance reports either emphasize
or include only items controllable by
the individual manager

Responsibility Accounting
for Profit Centers

Is based on detailed information about both

controllable revenues and controllable costs
o

Direct fixed costs relate specifically to a responsibility

center and are incurred for the sole benefit of the center;
most are controllable by the profit center manager
Indirect fixed costs pertain to a company's overall
operating activities and are incurred for the benefit of
more than one profit center; most are not controllable by
the profit center manager

Responsibility for Controllable

Costs at Varying Levels of
Management

Quick Review Question #1

1. Which of the following items do not
require a cash outflow?
a. Salaries.
b. Purchase of raw material.
c. Advertising.
d. Depreciation.

Quick Review Question #2

2. Which of the following comes last in
the budget process.
a. Sales budget.
b. Cash receipts/disbursements
budget.
c. Budgeted balance sheet.
d. Production budget.

Quick Review Question #4

4. Beginning inventory is 3,200 units.
Required ending inventory is 3,500
units. Sales are forecasted at 14,500
units. The production budget calls for
how many units?
a. 21,200
b. 14,200
c. 14,800

d. Cannot be determined

PRACTICE PROBLEM
XYZ manufactures something and their average selling price is
Rs. 40/unit and variable expenses are Rs.25 per unit. In the most
recent period, they sold 20,000 units and incurred Rs 250,000 of
fixed costs.
a) Prepare a variable costing income statement
b) Calculate the contribution margin per unit.
c) Calculate the contribution margin ratio.
d) Calculate the break-even point in sales Rs.
e) Calculate the break-even point in units sold.
f) Determine the required unit sales volume for a net income of Rs.125,000.
h) Calculate the % increase in net income if sales increase by 5%.