Answer to Question #188173 in Management for PAS

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Answer to Question #188173 in Management for PAS

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Question #188173

a) Explain different types of sales budget. ( Please answer in 200 words)

b) What are most prevalent strategies for setting sales budget? ( Please answer in 200 words)

Expert's answer

Sales Budget:

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A sales budget is an estimate of expected sales during a budget period. A sales budget is known as a nerve centre or backbone of the enterprise. The degree of accuracy with which sales are estimated will determine the practicability of operating budgets. A sales budget is the starting point on which other budgets are also based. A sales budget lays down potential sales figures in value as well as in quantity. It lays down a comprehensive plan and programme for sales department. The sales manager is made responsible for preparing sales budget. He uses all possible information available from internal and external sources.

The following factors are taken into account while preparing sales budget:

(a) Past sales figures

(b) Assessment and reports by salesmen

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(c) Availability of raw materials

(d) Seasonal fluctuations

(e) Availability of finances

(f) Plant capacity.

2. Selling and Distribution Cost Budget:

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Selling and distribution cost budget forecasts the cost of selling and distributing the products. This budget depends upon the sales budget. These expenses will very with the expected sales figures during the period. These expenses may be estimates per unit of sales or some percentage on sales, etc. The persons in-charge of sales and distribution should sit together to prepare this budget.

3. Production Budget:

The production budget is prepared in relation to the sales budget. Whatever is to be sold should be produced in time so that it is delivered to the customer. It is a forecast of the production for the budget period. Production budget is prepared for the number of units to be produced and also for the cost to be incurred on materials, labour and factory overheads.

Two important considerations involved in the preparation of production budget are:

(a) What is to be produced?

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(b) When is it to be produced?

The preparation of production budget involves the following stages:

(i) Production planning

(ii) Consideration of plant capacity

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(iii) Stock quantity to be held

(iv) Sales budget figures.

4. Cost of Production Budget:

The production budget determines the number of units to be produced. When these units are converted into monetary terms, it becomes a cost of production budget. The cost of production budget is the total amount to be spent on producing the units stipulated in the production budget. The physical units are broken into elements, i.e., material, quantity, labour, time and manufacturing overheads. The material cost, labour cost and overheads required for manufacturing are totalled together to make it a cost of production budget.

5. Materials Budget:

The materials budget is concerned with determining the quantity of raw materials required for production. The programme for purchasing raw materials is adjusted according to the production budget. The materials are purchased as per the requirements of production department. The requirements of materials are determined product wise. The rate of consumption of raw materials is also determined.

The following are some of the most prevalent strategies for setting a budget.