Page 151 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes due to market influence; which warrants the firm to go for placement of order not only taking

into consideration of expected consumption of raw materials but also the closing stock of raw
materials to be maintained at the end of the season, in order to facilitate to have uninterrupted

flow of production.
Why the opening stock of raw materials has to be deducted?

The opening stock of raw materials, which is available in the firm, should be considered for the
placement of order of raw materials. The materials to be ordered should be other than that of the
materials available in the fi rm.

Production Budget (Units)
Estimated Sales 50,000
Add: Desired Closing stock 14,000
Less: Opening Stock 64,000
10,000
Estimated Production 54,000

Materials Procurement or Purchase Budget (Units)

Material A Material B
Estimated Consumption
For A 2 units × 54,000 1,08,000
For B 3 units × 54,000 1,62,000
Add: Closing Stock 13,000 16,000
1,21,000 1,78,000
Less: Opening Stock 12,000 15,000
Estimated Purchases 1,09,000 1,63,000

8.3.3 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.

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