Sales budget is the first and basic component of master budget and it shows the expected number of sales units of a period and the expected price per unit. It also shows total sales which are simply the product of expected sales units and expected price per unit.
Sales Budget influences many of the other components of master budget either directly or indirectly. This is due to the reason that the total sales figure provided by sales budget is used as a base figure in other component budgets. For example the schedule of receipts from customers, the production budget, pro forma income statement, etc.
Due to the fact that many components of master budget rely on sales budget, the estimated sales volume and price must be forecasted with sufficient care and only reliable forecast techniques should be employed. Otherwise the master budget will be rendered ineffective for planning and control.
Format and Example
Where the price per unit is expected to remain constant during the period for all units in sales, the sales budget format will be simple as shown below.
|For the Year Ending December 30, 2010|
|× Price per Unit||$91||$92||$97||$112|
However if a business sells more than one product having different prices or the price per unit is expected to change during the period, its sales budget will be detailed.
Written by Irfanullah Jan