VIVEK COLLEGE OF COMMERCE CHAPTER: 1 INTODUCTION The future should be planned. The Business budget is a plan for future, which is expressed, in monetary or physical terms. Budgets are nothing but the expressions, largely in financial terms of management’s plan for operating and financing the enterprise, during a specific period of time. The act of planning as to how the amount should be spent is known as Budgeting. The act of continuously monitoring and taking timely corrective actions is Budgetary Control. Therefore, Budgetary Control has become an essential tool of management for controlling costs and maximizing profits. Cost Accountancy is the application of costing and costs Accounting Principles, Methods and Techniques to the science, art and practice of cost control. The chief tools for cost control are Budgetary control, Standard Costing and Cost Audit. According to CIMA, London, Budget is defined as ‘a financial and/or quantitative statement prepare and approved prior to a defined of time, of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and Page 1
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VIVEK COLLEGE OF COMMERCE
CHAPTER: 1
INTODUCTION
The future should be planned. The Business budget is a plan for future, which is
expressed, in monetary or physical terms. Budgets are nothing but the expressions,
largely in financial terms of management’s plan for operating and financing the
enterprise, during a specific period of time. The act of planning as to how the amount
should be spent is known as Budgeting. The act of continuously monitoring and
taking timely corrective actions is Budgetary Control. Therefore, Budgetary Control
has become an essential tool of management for controlling costs and maximizing
profits.
Cost Accountancy is the application of costing and costs Accounting Principles,
Methods and Techniques to the science, art and practice of cost control. The chief
tools for cost control are Budgetary control, Standard Costing and Cost Audit.
According to CIMA, London, Budget is defined as ‘a financial and/or quantitative
statement prepare and approved prior to a defined of time, of the policy to be pursued
during that period for the purpose of attaining a given objective. It may include
income, expenditure and the employme3nt of capital.’ In other words, Budget refers
to a plan covering all the sectors of operations expressed in monetary and/or
quantitative terms for a definite future period of time. Budget exhibits managerial
plans and policies, for the organization as a whole, or a part thereof, to achieve
business goals and objectives in quantitative terms for a definite future period.
ESSENTIALS OF A GOOD BUDGET :
1. It is prepared prior to a defined period of time.
2. It is prepared for the definite future period.
3. The policy to be followed to attain the given objectives must be laid before
the budget is prepared.
4. It is monetary and/or quantitative statements of the policy
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CONCEPT OF BUDGETING
One of the primary objectives of cost accounting is to provide information to business
managements for planning and control. Budgeting acts as tool of both planning and
control. Budgeting is a formal process of financial planning using estimated financial
and accounting data.
MEANING OF BUDGETING
According to J.Batty, ’the entire process of preparing the Budgets is known as
Budgeting.’ Therefore, the term Budgeting refers to the act of preparing Budgets. It is
the managerial action of formulating Budgets.
The Institute of Cost and Management Accountants (UK) defines a budget as “a
financial and/or quantitative statement, prepared and approved prior to a defined
period of time, of the policy to be pursued during that period for the purpose of
attaining a given objective, it may include income, expenditure and the employment
of capital.”
FEATURES OF BUDGET
A budget must have the following features:
i. It should reflect the managerial plans and achieve business goals and
objectives.
ii. It is expressed either in monetary terms or quantitative terms or both.
iii. It is a comprehensive plan for a definite future period.
iv. Though it is basically an instrument of planning, it still provides the basis for
performance evaluation and control.
BUDGETING AND FORECASTING
Sometimes the terms” budgeting” and “forecasting” are used interchangeably. Both
terms have some similarities, for example, both relate to future events and involve
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prediction of something. The basic difference between budgeting and forecasting lies
in degree of sophistication involved in the predictions used by them. According to the
National Association of Accountants (USA), “forecasting” is a process of predicting
or estimating a future happening.” Forecasting is an essential part of the budgeting
process. Forecasting come to an end after mere estimating. Budgeting is a process of
preparing budgets and further control aspects are involved in its procedure. Besides,
forecasting can be made by a firm for purposes other than budgeting, such as a
forecast of general business conditions. Such forecasts are sometimes not used in
budgeting.
Thus, budgeting is not merely forecasting of a particular event. It is not simply an
estimation or prediction; it is a plan. In simple terms, budgeting is an attempt, at the
beginning of the year (or at any to other or period), to plan the profit and loss account
for the year and to aim for a definite balance sheet at its end, instead of relying upon
chance.
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CHAPTER: 2
BUDGETARY CONTROLMEANING OF BUDGETORY CONTROL:
It is the process of establishing of departmental budgets relating the responsibilities of
executives to the requirements of a policy, and the continuous comparison of actual
with budgeted results, either to secure by individual action the objectives of that
policy, or to provide a firm basis for its revision. First of all budgets are prepared and
then actual results are the comparison of budgeted and actual figures will enable the
management to find out discrepancies and take remedial measures at a proper time.
The budgetary control is a continuous process, which helps in planning and co-
ordination. It provides a method of control too. A budget is a means and budgetary
control is the end result.
In the words of J.A.Scolt "Budgetary control is the system of management control
and accounting in which all operations are forecast and so as possible planned ahead
and active results compared with the forecast and the planned ones.
BUDGETARY CONTROL is actually a means of control in which the actual results
are compared with the budgeted results so that appropriate action may be taken with
regard to any deviations between the two. Budgetary control has the following stages.
A. Developing Budgets:
The first stage in budgetary control is developing various budgets. It will be necessary
to identify the budget centers in the organization and budgets will have to develop for
each one of them. Thus budgets are developed for functions like purchase, sale,
production, manpower planning as well as for cash, capital expenditure, machine
hours, labor hours and so on. Utmost care should be taken while developing the
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budgets. The factors affecting the planning should be studied carefully and budgets
should be developed after a thorough study of the same.
B. Recording Actual Performance:
There should be a proper system of recording the actual performance achieved. This
will facilitate the comparison between the budget and the actual. An efficient
accounting and cost accounting system will help to record the actual performance
effectively.
C. Comparison of Budgeted and Actual Performance:
One of the most important aspects of budgetary control is the comparison between the
budgeted and the actual performance. The objective of such comparison is to find out
the deviation between the two and provide the base for taking corrective action.
D. Corrective Action:
Taking appropriate corrective action on the basis of the comparison between the
budgeted and actual results is the essence of budgeting. A budget is always prepared
for future and hence there may be a variation between the budgeted results and actual
results. There is a need for investigation of the same and take appropriate action so
that the deviations will not repeat in the future. Responsibilities can be fixed on
proper persons so that they can be held responsible for any such deviations.
CONCEPT OF BUDGETARY CONTROL
Cary control is a means of control in which the actual state of affairs is compared with
the budget so that appropriate action may be taken with regard to any deviations
before it is too late. Briefly, the use of a budget to control a firm’s activities is known
as budgeting control. Budgetary control has the following main objectives:
1. To provide an organized procedure for planning. It provides a detailed plan of
action for a business over a definite period of time.
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2. To coordinate all the activities of various departments of a business firm in such a
manner that the maximum profit will be achieved for the minimum use of resources
3. To provide a means of determining the responsibility for all deviations from the
plan (budget), and to supply information on the basis of which necessary corrective
may be taken. Thus, budgetary control has the objective of controlling cost.
ESSENTIAL OF BUDGETARY CONTROL:
1. Budgeting, or the process of preparing the budget, is the starting point for
budgetary control.
2. Distribution of budgets pertaining to each function to all the relevant sections
within the organization.
3. Collection of actual data pertaining to all budgeted activities.
4. Continuous comparison of actual performance with budgeted performance.
5. Analysis of variances in actual performance and budgeted performance.
6. Initiation of corrective action to ensure that actual performance is in line with
budgeted performance.
7. Revision of budgeted if it is felt that the budgets prepared are no longer
relevant on account of unforeseen developments.
OBJECTIVES OF BUDGETARY CONTROL
The primary objective of budgetary control's to help the management in systematic
planning and in controlling the operations of the enterprise. The primary objective can
be met only if there is proper communication and coordination amongst different
within the organization. Thus the objectives can be stated as:
Following are the main objectives of a budgetary control system:
i. Performance Evaluation: It is the most effective tool to the management for
the performance evaluation of all the business activities of the organization.
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ii. Planning: It is a very effective tool of planning for all business activities
require some planning to ensure efficient and maximum use of scarce
resources. The budget is a formal planning framework that provides specific
deadlines to achieve departmental objectives and contributes towards the
overall objectives of an organisation.
iii. Coordinating: Coordinating is a managerial function under which all factors of
production and all department activities are balanced and integrated to achieve
the objectives of the organisation.
iv. Responsibilities: One of the important objectives of Budgetary Control is to
define the responsibility of the concerned executive who is engaged in
different business activities.
v. Communicating: It also acts as an effective communicative device of the
business on objectives among the different levels of employees of an
organization.
vi. Motivating: It also acts as useful motivating device to perform clearly the
defined responsibilities of different executives of the organization.
vii. Cost Control: It is used as a very powerful tool for controlling the costs of an
organization.
ADVANTAGES OF BUDGETARY CONTROL
Several advantages that accrue to Budgetary Control are as follows:
a) It acts as a very useful and effective tool for controlling cost.
b) It provides yardsticks for evaluation of actual performance.
c) It clearly defines the areas of responsibility of all concerned executives who
are engaged in various business activities, resulting in effective delegation of
authority.
d) It points out the efficiency of various business activities.
e) It increases the operational efficiency of all business activities.
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f) It helps the management in the process of its planning in respect of various
business activities.
g) It coordinates various activities of different sections, divisions or departments
of the organization.
h) It facilitates the effective utilizations of all resources of the organization.
i) It motivates to attain goals.
j) It helps in obtaining loans from banks and financial institutions.
k) It creates an environment for standard costing.
LIMITATIONS OF BUDGETARY CONTROL
In spite of having many advantages of Budgetary Control, it suffers from the
following limitations:
i. Budget plans are based on estimates which may not be accurate in all cases.
ii. It plays a limited role in the process of controlling various business activities.
iii. Budgetary Control System introduced in an organization may be resisted by
some employees who are not as much efficient as others.
iv. Intodu8ction of budgetary Control System in an organization is an expensive
programmer.
v. Though it acts as an effective tool of the management, it is not a substitute of
the management.
vi. It loses its usefulness if it is not revised with the changing circumstances.
ORGANIZATION FOR BUDGETING (THE BUDGET
COMMITEE)
PREPARATION OF BUDGET:
A budgetary control is extremely useful for planning and controlling as described
above. However, for getting these benefits, sufficient preparation should be made. For
complete success, a solid foundation should be laid down and in view of this the
following aspects are of crucial importance.
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I. BUDGET COMMITTEE:
For successful implementation of budgetary control system, there is a need of a
budget committee. In small or medium size organizations, there may not be carried
out by the Chief Account himself. Due to the size of organization, there may not be
too many problems in implementation of the budgetary control system. However, in
large size organization, there is a need of a budget committee consisting of the chief
executive, budget officer and heads of main departments in the organization. The
functions of the budget committee are to get the budgets prepared and then scrutinize
the same, to lay down broad policies regarding the preparation of budgets, to approve
the budgets, suggest for revision, to monitor the implementation and to recommend
the action to be taken in a given situation.
II. BUDGET CENTERS:
Establishment of budget centers is another important pre-requisite of a sound
budgetary control system. A budget canter is a group of activities or a section of the
Organization for which budget can be developed. For example, manpower planning
budget, research and development cost budget, production and production cost
budget, labor hour and so on. Budget centers should be defined clearly so that
Preparation becomes easy.
III. BUDGET PERIOD:
A budget is always prepared prior to a defined period of time. This means that the
period for which a budget is prepared is decided in advance. Thus a budget may be
prepared for three years, one year, six months, one month or even for a week. The
point is that the period for the functional budgets like sales, purchase, production etc.
are prepared for one year and then broken down on monthly basis. Budgets like
capital expenditure are generally prepared for a period from 1 year to 3 years. Thus
depending upon the type of budget, the period of the same is decided and it is
important that it is decided well in advance.
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IV. PREPARATION OF AN ORGANIZATION CHART:
There should be an organization chart that shows clearly defined authorities and
responsibilities of various executives. The organization chart will define clearly the
functions to be performed by each executive relating to the budget preparation and his
Relationship with other executives. The organization chart may have to be ensuring
that each budget center is controlled by an appropriate member of the staff.
V. PRINCIPAL BUDGET FACTOR:
A principal budget factor is that factor the extent of whose influence must first be
assessed in order to prepare the functional budgets. Normally sales are the key factor
or principal budget factor but other factors like production, purchase, and skilled labor
may also be the key factors. The key factor puts restrictions on the other functions and
hence it must be considered carefully in advance. So continuous assessment of the
business situation becomes necessary. In all conditions the key factor is the starting
point in the process of preparation of budgets.
A typical list of some of the key factor is given below:
Sales: Consumer demand, shortage of sales staff, inadequate advertising
Material: Availability of supply, restrictions on import
Labor: Shortage of labor
Plant: Availability of capacity, bottlenecks in key processes
Management: Lack of capital, pricing policy, shortage of efficient executive, lack of
faulty design of the product etc.
VI. ACCOUNTING RECORDS:
It is essential that the accounting system should be able to record and analyze the
transaction involved. A chart of accounts or accounts code should be maintained
which may correspond with the budget centers for establishment of budgets and
finally, control through budgets. Responsibility for Budget direction and execution is
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usually placed in the hands of a Budget Committee which reports directly to top
management. In large companies the budget committee is composed of executives in
charge of major functions of the business and includes the sales manager, HRD
manager, finance manager the production manager, the chief engineer, the treasurer
and the chief accounts officer.
VII. BUDGET MANUAL
ICMA English defines a Budget Manual as “a document, schedule or booklet which
sets out, inter alia, the responsibilities of the persons engaged in the routine of and the
forms and records required for budgetary control. Thus, it is a written document
which guides the executives in preparing various .it should be clear and there should
be no ambiguity in it. The Manual is subdivided into different sections for the purpose
of easy handling. They are;
Income Statement Budget
Statement of Retained Earning Budget
Budgeted Balance sheet or position Statement Budget
VIII. THE BUDGET PERIOD
The budget period is an important factor in developing a comprehensive budgeting
programme. The length of the budget period depends on the type of business, the
length of the manufacturing cycle from raw material to finished product, the ease of
difficulty of forecasting future market conditions and other factors. However, a
business enterprise generally prepares a SHORT-RANGE BUDGET, and LONG-
RANG BUDGET.
SHORT-RANGE BUDGET
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They are for a short period. They are useful in case of consumer goods industries.
These Budgets are used by the lower level management. E.g., Material Budget Cash
Budget
LONG-RANG BUDGET
They are prepared for a long period. These are generally prepared by a financial
controller exclusively for the top-level management. These are useful for organization
having a long gestation period, generally expressed as a percentage or in physical
terms, e.g. Capital Expenditure Budget, R&D Budget, etc
CHAPTER: 3
TYPES OF BUDGETS
There are various types of budgets which are explained below:
FIXED AND FLEXIBLE BUDGETS:
The fixed and flexible budgets are discussed in detail in the following paragraphs.
i. Fixed Budget: When a budget is prepared by assuming a fixed percentage of
capacity utilization, it is called as a fixed budget. For example, a firm may
decide to operate at 90% of its total capacity and prepare a budget showing the
projected profit or loss at that capacity. This budget is defined by The Institute
of Cost and Management Accountants of [U.K.] as ‘the budget which is
designed to remain unchanged irrespective of the level of activity actually
attained. It is based on a single level of activity’. For preparation of this
budget, sales forecast will have to be prepared along with the cost estimate.
Cost estimate can be prepared by segregating the costs according to their
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behavior i.e. fixed and variable. Cost predictions should be made element wise
and the projected profit or loss can be worked out by reducing the cost from
the sales revenue. Actually in practice, fixed budgets are prepared very rarely.
The main reason is that the actual output differs from the budgeted output
significantly. Thus if the budget is prepared on the assumption of producing
50, 000 units and actually the number of units produced are 40, 000, the
comparison of actual results with the budgeted ones will be unfair and
misleading. The budget may reveal the difference between the budgeted costs
and actual costs but the reason for the deviations may not be pointed out. A
fixed budget maybe prepared when the budgeted output and actual output are
quite close and not much deviation exist between the two. In such cases,
maximum control can be exercised between the budgeted performance and
actual performance.
ii. Flexible Budgets: a Flexible budget is a budget that is prepared for different
levels of capacity utilization. It can be called as a series of fixed budgets
prepared for different levels of activity. For example, a budget can be prepared
for capacity utilization levels of 50%, 60%, 70%, 80%, 90% and 100%. The
basic principle of flexible budget is that if budget is prepared for showing the
results at say, 15, 000 units and actual production is only 12, 000 units, the
comparison between the expenditures, budgeted and actual will not be fair as
the budget was prepared for 15, 000 units. Therefore it is developed for a
relevant range of production from 12, 000units to 15, 000 units. Thus even if
the actual production is 12,000 units, the results will be comparable with the
budgeted performance of 12, 000 units. Even if the production slips to8,000
units, the manager has a tool that can be used to determine budgeted cost at
8,000 units of output. The flexible budget thus, provides a reliable basis for
comparison because it is automatically geared to change in production
activity. Thus a flexible budget covers a range of activity, it is flexible i.e. easy
with variation in production levels and it facilitates performance measurement
and evaluation.
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iii. While preparing flexible budget, it is necessary to study the behavior of cost
and divide them in fixed, variable and semi variable. After doing this, the costs
can be estimated for a given level of activity.
iv. It is also necessary to plan the range of activity. A firm may decide to develop
flexible budget for activity level starting to plan the range of activity level
from 50% to 100% with an interval of 10% in between. It is necessary to
estimate the costs and associate them with chosen level of activity.
v. Finally the profit or loss at different levels of activity will be computed by
comparing the costs with the revenues.
Illustration 1
A manufacturing company is currently working at 50% capacity and produces
10,000 units at a cost of Rs. 180 per unit as per the following details.
Materials: Rs.100
Labor: Rs.30
Factory Overheads: Rs.30 [40% fixed]
Administrative Overheads: Rs.20 [50% fixed]
The selling price per unit at present is Rs.200. At 60% working, material cost
per unit increases by 2% and selling price per unit falls by 2%. At 80%
working, material cost per unit increases by 5% and selling price per unit falls
by 5%.
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Prepare a Flexible Budget to show the profits/ losses at 50%, 60% and 80%
capacity utilization.al Cost per Unit: Rs.180
Solution:
Flexible Budget
Particulars Capacity
Utilization
50%
Capacity
Utilization
60%
Capacity
Utilization
80%
A] Number of Units 10,000 12,000 16,000
B]Selling Price Per Unit 200 196 190
C] Variable Cost Per
Unit
• Direct Material
• Direct Labor
•Factory
Overheads[60%]
• Administrative
Overheads[50%]
Rs.100
Rs.30
Rs.18
Rs.10
Rs.102
Rs.30
Rs.18
Rs.10
Rs.105
Rs.30
Rs.18
Rs.10
D]Total Variable Cost
Per Unit
Rs.158 Rs.160 Rs.163
E] Total Variable Cost
[A X D]
Rs.15,80,000 Rs.19,20,000 Rs.26,08,000
F] Fixed Costs
[Rs.12 + Rs.10 = Rs.22
per unit at existing level
10,000 units.]
Rs.2,20,000 Rs.2,20,000 Rs.2,20,000
G] Total Cost[E + F] Rs.18,00,000 Rs.21,40,000 Rs.28,28,000
H] Sales Revenue
[A X V]
Rs.20,00,000 Rs.23,52,000 Rs.30,40,000
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I] Profits/ Losses
[H – G ]
Rs.2,00,000 Rs.2,12,000 Rs.2,12,000
MASTER BUDGETS
All the budgets described above are called as ‘Functional Budgets’ that are prepared
for the planning of individual function of the organization. For example, Budgets are
prepared for Purchase, Sales, Production, Manpower Planning, and so on. A master
budget which is also called as ‘Compressive Budget’ is a consolidation of all the
functional budgets. It shows the projected Profit and Loss account and Balance sheet
of business organization. For preparation of this budget, all functional budgets are
combined together and the relevant figures are incorporated in preparation of the
projected Profit and Loss Account and Balance Sheet. Thus Master Budget is
prepared for the organization and not for individual functions.
SALES BUDGET
Sales Budget is an estimate of expected sales during a budget period. It lays down a
comprehensive plan and program for department. Sales Manager is responsible for
preparing Sales Budget. It expresses the figures in Quantity as well as in value. It is
generally prepared Territory Wise (Area wise). The degree of accuracy with which
sales are estimated determines the success of budgeting exercises. The following
points should be taken into account while preparing Sales Budgets.
i. Sales figures
ii. Assessment of sales
iii. Availability of key factor
iv. Seasonal fluctuation
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v. Availability of financers
vi. General trade prospects
vii. Order book position
viii. Market intelligence
ix. External environment
x. Policy implication
The sales budget contains an itemization of a company's sales expectations for the
budget period, in both units and dollars. If a company has a large number of products,
it usually aggregates its expected sales into a smaller number of product categories;
otherwise, the sales budget becomes too unwieldy. The sales budget is usually
presented in either a monthly or quarterly format.
The information in the sales budget comes from a variety of sources. Most of the
detail for existing products comes from those personnel who deal with them on a day-
to-day basis. The marketing manager contributes sales promotion information, which
can alter the timing and amount of sales. The engineering and marketing managers
may also contribute information about the introduction date of new products, as well
as the retirement date of old products. The chief executive officer may revise these
figures for the sales of any subsidiaries or product lines that the company plans to
terminate or sell during the budget period.
The basic calculation in the sales budget is to itemize the number of unit sales
expected in one row, and then list the average expected unit price in the next row,
with the total revenues appearing in a third row. If any sales discounts or returns are
anticipated, these items are also listed in the sales budget.
It is extremely important to do the best possible job of forecasting, since the
information in the sales budget is used by most of the other budgets (such as the
production budget and the direct materials budget). Thus, if the sales budget is
inaccurate, then so too will be the other budgets that use it as source material.
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The projected unit sales information in the sales budget feeds directly into the
production budget, from which the direct materials and direct labor budgets are
created. The sales budget is also used to give managers a general sense of the scale of
operations, for when they create the overhead budget and the sales and administrative
expenses budget. The total net sales dollars listed in the sales budget are carried
forward into the revenue line item in the master budget.
Example of the sales budget
ABC Company plans to produce an array of plastic pails during the upcoming budget
year, all of which fall into a single product category. Its sales forecast is outlined as
follows:
ABC Company Sales Budget for the Year Ended December 31, 2012
Quarter 1 Quarter 2 Quarter 3 Quarter 4
Forecasted unit sales 5,500 6,000 7,000 8,000
x Price per unit $10 $10 $11 $11
Total gross sales $55,000 $60,000 $77,000 $88,000
- Sales discounts &
allowances
$1,100 $1,200 $1,540 $1,760
= Total net sales $53,900 $58,800 $75,460 $86,240
ABC's sales manager expects that increased demand in the second half of the year
will allow it to increase its unit price from $10 to $11. Also, the sales manager expects
that the company's historical sales discounts and allowances percentage of two
percent of gross sales will continue through the budget period.
This example of the sales budget is simplistic, since it assumes that the company only
sells in one product category. In reality, this example might have been a detail page
that rolls up into the main sales budget, where it would occupy a single line item.
Illustration 2
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XYZ & Co., manufactures two products X and Y and sells them through two
divisions east and west. For the purpose of submission of sales budget
committee, the following information has been made available
Budgeted Sales for the current year were:
Product East West
X 400 units @ Rs.9 600 units @ Rs. 9
Y 300 units @ Rs.21 500 units @ Rs.21
Actual sales for the current year were:
Product East West
X 500 units @ Rs.9 700 units @ Rs. 9
Y 200 units @ Rs.21 400 units @ Rs.21
Adequate market studies reveal that product X is popular bud under – priced. It
is observed that if price of X is increased by re. 1, it will find a ready market.
On the other hand, Y is overpriced to customers and market could absorb more
if sales price of Y be reduced by Re. 1. The management has agreed to give
effect to the above price changes.
From the information based on these price changes and reports from salesmen.
The following estimates have been prepared by divisional managers.
Percentage increase in sales over current budget is:
Product East West
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X +10% +5%
Y +20% +10%
With the help of an intensive advertisement campaign, the following additional
sales above the estimated sales of divisional manager are possible;
Product East West
X (units) 60 70
Y (units) 40 50
Your are required to prepare a budget for sales incorporating the above
estimates and show the budgeted and actual sales of the current year.
Divisional
Product
Budget for future
period
Budget for current
period
Actual sales for
current period
Qty Price
Rs.
Value
Rs.
Qty Price
Rs.
Value
Rs.
Qty Price
Rs.
Value
Rs.
East X
Y
500
400
10
20
5000
8000
400
300
9
21
3600
6300
500
200
9
21
4500
4200
Total 900 13000 700 9900 700 8700
West X
Y
700
600
10
20
7000
12000
600
500
9
21
5400
10500
700
400
9
21
6300
8400
Total 130
0
19000 1100 15900 1100 14700
Total X 120 10 12000 1000 9 9000 1200 9 10800
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Y0
100
0
20 20000 800 21 16800 600 21 12600
Total 220
0
32000 1800 25800 1800 23400
Illustration 3
1. Z Ltd., has prepared the following sales Budget for first five
months of 2011.
Month Sales Budget (units)
January 10,800
February 15,600
March 12,200
April 10,400
May 9,800
Inventory finished goods at the end of every month is to be equal to 25 % of sales
estimate for the next month. On 1st January2011, there were 2,700 units of product on
hand. There is no work-in progress at the end of any month.
Every unit product requires two types of materials in the following quantities;
Material A: 4 Kg.
Material B: 5 Kg.
Materials equal to one half of the requirements of the next month’s production are to
be in hand at the end of every month. This requirement was met on 1st January 2011.
Prepare the following budgets for the quarter ending on 31st march2011