Sales and Production Budget

Section 11 Objective 8

Prepare Sales and Production Budgets

Sales and Production BudgetsThe master budget: • The master budget is a business’s one-year budget planning document.• It encompasses all other budgets.• The document include budgets which shows

– expected future sales – productions levels– purchases, future expenses incurred– capital investments– loans to be acquired and repaid.

• Examples of budgets are cash, sales, purchases and many others.

Sales and Production Budgets

Sales and Production Budgets

Sales and Production Budgets

• Sales budget:• A sales budget is a detailed schedule showing the expected

sales for the coming periods.• It is expressed in both dollars and units of product. • The budget is the key to the entire budgeting process. • The sales budget is the first budget of the master budget

that is prepared for a firm.

Sales budget:• The sales budget is derived from the sales forecast.Sales forecast:• Sales forecast is the projection of potential sales for

the industry and a company’s expected share of sales.

Sales and Production Budgets

• The formula to calculate sales for each period is:Total Sales = Expected unit sales x Unit selling priceSales budget template:

• Production budget:– Terms:– Production inputs are the components used to

produce goods or services. • They are direct materials, direct labour and the

manufacturing overhead.– Production costs (also known as manufacturing

cost or inventoriable costs) • refers to the costs incurred in the manufacturing of

goods or services.

Sales and Production Budgets

• Production budget:– The production budget shows the units that must be

produced to meet anticipated sales– This budget is prepared after the preparation of the sales

budget.– The amount for the budget is derived from the the sales

budget and also the planned amount of finished goods inventory to have on hand

Sales and Production Budgets

• Production budget:– In the budgeting process, after the production budget is

set, it becomes the key factor in determining the other budgets.

– The formula to calculate the required production units for each period is:

– Production units = Budgeted sales units + desired ending finished goods units – beginning finished goods units

Sales and Production Budgets

• Production budget template:

Sales and Production Budgets

• Look at the links on the next two slides and watch the following videos on the sales and production budgets

Sales and Production Budgets

• Go to:‘The Sales Budget’Education Unlockedhttps://www.youtube.com/watch?v=frCX_bsFsao

‘The Production Budget’Education Unlockedhttps://www.youtube.com/watch?v=YwIUeaFkOS8

Sales and Production Budgets