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.

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.