Page 141 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes 7.2.3 Sales Budget

Sales Budget is an estimate of anticipation of sales in the near future prepared by the responsible
person for the sale of a product by considering the various factors of infl uence. Sales budget is
usually prepared in terms of quantity and value. The following factors are normally considered
for the preparation of sales budget of a fi rm:
1. Last sales fi gures
2. Estimates of the salesmen who is frequently operating in the market, known much greater
than any body in the market
3. Capacity of the plant and machinery to produce
4. Funds availability
5. Availability of raw materials to the tune of demand in the respective time period

6. Changes in the taste and preferences of the customer or consumer
7. Changers in the competition structure - Monopoly to Perfect competition — Previously
BSNL was known as DOT as a monopoly in the market in affording the services till early
2000. Then later, the changes taken place in the market environment i.e. competition due
to invasion of new entrants like Reliance, Hutch, Bharti tele ventures and so on; warrants
careful preparation of sales budget of number of telephone connection expected to sell.

Example: Reynolds Pvt. Ltd. manufactures two brands of pen Light & Elite. The sales
department of the company has three departments in different regions of the country.

The sales budgets for the year ending 31st Dec, 2006 Light department I=3,00,000; department
II=5,62,500; department III=1,80,000: Elite-department I=4,00,000; department II=6,00,000;
department III=20,000.
Sales prices are ` 3 and ` 1.20 in all departments. It is estimated that by forced sales promotion
the sales of Elite in department I will increase by 1,75,000. It is also expected that by increasing
production and arranging extensive advertisement, department III will be enabled to increase the
sale of Elite by 50,000.
It is recognized that the estimated sales by department II represent and unsatisfactory target. It is
agreed to increase both estimates by 20%.
Prepare a sales budget for the year 2006.
Solution:
Sales budget should be prepared to the tune of various influences of forthcoming seasons’ sales.

The expected increase or decrease in the sales volume should be incorporated at the time of
preparing the sales budget from the yester periods sale fi gures.

1. There is no change in the volume of existing sales of the department of I Light; the existing
sales of the department I of the Light should be retained as it is for the computation of the

budgeted figures, but there is a change expected to occur in the existing volume of sales
of the department I of the Elite. The change expected amounted to increase 1,75,000 units
in addition to the volume of existing sales, i.e. the total volume of sales is equivalent to
4,00,000 units of existing volume of sales + 1,75,000 units expectation of increase= 5,75,000
units for Elite Department I.

2. In the II department of both Light & Elite expected to have an increase on the volume of
existing sales amounted is 20% i.e. 20% increase on the Department II of Light 5,62,500
units amounted 6,75,000 units and similarly in the case of Department II of Elite 6,00,000
units amounted 7,20,000 units.

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