Sales Budget

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Sales Budget Definition

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.

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, 20XX

	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.

Other Sales Budget Issues

It is not customary to include a calculation of cash receipts as part of the sales budget. Instead, the cash receipts are calculated for all of the revenues and expenditures of a business as a whole, and are then summarized on a separate page of the budget.