Prepare Operating Budgets

Sales Budget

The sales budget details the expected sales in units and the sales price for the budget period. The information from the sales budget is carried to several places in the master budget. It is used to determine how many units must be produced as well as when and how much cash will be collected from those sales.

For example, Big Bad Bikes used information from competitor sales, its marketing department, and industry trends to estimate the number of units that will be sold in each quarter of the coming year. The number of units is multiplied by the sales price to determine the sales by quarter as shown in Figure 7.7.


 BIG BAD BIKES
Sales Budget
For the Year Ended December 31, 2019

Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total
Expected Sales (Units) 1,000 1,000 1,500 2,500 6,000
Sales Price per Unit $70 $70 $75 $75
Total Sales Revenue $70,000 $70,000 $112,500 $187,500 $440,000

Figure 7.7 Sales Budget for Big Bad Bikes.

The sales budget leads into the production budget to determine how many units must be produced each week, month, quarter, or year. It also leads into the cash receipts budget, which will be discussed in Prepare Financial Budgets.

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