SALES BUDGET BASIC INFORMATION AND TUTORIALS

HOW TO MAKE A SALES BUDGET - FINANCE

The sales budget is the starting point in preparing the operating budget, since estimated sales volume influences almost all other items appearing throughout the annual budget. The sales budget gives the quantity of each product expected to be sold.

Basically, there are three ways of making estimates for the sales budget:

1. Make a statistical forecast (using any one or a combination of the methods on the basis of an analysis of general business conditions, market conditions, product growth curves, etc.

2. Make an internal estimate by collecting the opinions of executives and sales staff.

3. Analyze the various factors that affect sales revenue and then predict the future behavior of each of those factors.

After sales volume has been estimated, the sales budget is constructed by multiplying the estimated number of units by the expected unit price. Generally, the sales budget includes a computation of cash collections anticipated from credit sales, which will be used later for cash budgeting.

See Example Below:

Assume that of each quarter’s sales, 70 percent is collected in the first quarter of the sale; 28 percent
is collected in the following quarter; and 2 percent is uncollectible.

The Johnson Company

Sales Budget

For the Year Ended December 31, 20X2