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Budgeting for Sales

Learn more about budgeting for sales.

Budgeting for Sales

In large companies, the sales forecast is usually prepared by the marketing department (it requires significant market research).

In smaller companies, the sales forecast may be made by an individual or small group of managers

Things to consider:

  • Anticipated marketing or advertising plans
  • The impact of new products or changes in product mix on the entire product line
  • Other factors, e.g. political and legal events, new competition, weather changes, fashions, etc.

Budgeting Example

  1. Royal Company is preparing budgets for the quarter ending June 30th.
  2. Budgeted sales for the next five months are:
    • April – 20,000 units
    • May – 50,000 units
    • June – 30,000 units
    • July – 25,000 units
    • August – 15,000 units
  3. The selling price is $10 per unit.

Sales Budget

The months of April, May, and June are summed to obtain the total budgeted sales in units and dollars for the quarter ended June 30th.

Budget sales in units: April 20,000, May 50,000 June 30,000 Quarter 100,000. Selling price per unit: April 10, May 10, June 10, Quarter 10. Total budget sales: April 200,000, May 500,000, June 300,000, Quarter 1,000,000

Expected Cash Collections

  • All sales are on account.
  • Royal’s collection pattern is:
    • 70% collected in the month of sale,
    • 25% collected in the month following sale,
    • 5% uncollectible
  • In April, the March 31st accounts receivable balance of $30,000 will be collected in full.

Accounts receivable: April 30,000 May 0, June 0, Quarter 30,000. April sales 70% x 200,000" April 140,000, May 0, June 0, Quarter 140,000. 25% x 200,000: April 0, May 50,000, June 0, Quarter 50,000. May sales 70% x 500,000: April 0, May 350,000, June 0, Quarter 350,000. 25% x 500,000: April 0, May, 0, June 125,000, Quarter 125,000. Jun sales 70% x 300,000: April 0, May 0, June 210,000, Quarter 210,000. Total cash collections: April 170,000, May 400,000, June 335, 000, Quarter 905,000

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