Page 152 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Unit 8: Budgetary Control

Notes
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.
3. In the III department of Light does not have any change in the volume of existing sales,
it means that 1,80,000 units has to be retained as it is in the computation of the budgeted
figure but in the case of Elite, department III expected to have an increase in the volume of

sales which amounted 20,000 units i.e. 70,000 units.
Sales Budget for the Year 2006
Selling Price Light `` 3 Elite `` 1.20 Total
Quantity ` Quantity ` `
Department I 3,00,000 9,00,000 5,75,000 6,90,000 15,90,000
Department II 6,75,000 20,25,000 7,20,000 8,64,000 28,89,000
Department III 1,80,000 5,40,000 70,000 84,000 6,24,000
11,55,000 4,65,000 13,65,000 16,38,000 51,03,000

8.3.4 Sales Overhead Budget

It is one of the important subfunctional budgets, prepared by the sales manager who is
responsible for the sales volume of the enterprise to increase through various devices/tools of
sales promotion.

LOVELY PROFESSIONAL UNIVERSITY 147