Operating Budget: The Sales Budget, Functions & Role in an organization.

The Sales Budget is the first budget prepared. It is derived from the sales forecast (estimate of sales revenue for the budget period).

Salient points about the Sales Budget:

• The formula is simple namely Sales Forecast=Quantities forecast X Selling prices

• It has a detailed breakdown by product,area,timing, volume and value. The detailed breakdown is to enable the preparation of production budget as well as the company’s cash budget.

• In preparing the budget,the sales personnel may rely on the following:

• Salesmen reports where the salesmen are in direct contact with the customers and are therefore able to prepare detailed estimates of sales for the budgeted period
• Market survey: some companies employ market researchers to anaylze the demand for their products;
• General business conditions: a political social, economic or technological change must be considered as it may affect the demand for their products
• Company’s policy: any change in company’s policy relating to the products sold must be considered.

• Important to identify the principal budget factor because it will be crucial in the preparation of the sales budget. For example, if the plant capacity is incapable of producing the expected volume of sales then the sales budget must be determined by output.

• Since demand is influenced by price the sales should be prepared only after the selling price has been fixed.