27. Sales Budgets and Production Budgets

Question 1

What comprises the operational budget?

Answer 1

• Sales budget
• Production budget
• Direct materials budget
• Direct labor budget
• Manufacturing overhead budget
• Budgeted product cost sheet
• Selling and admin expense budget
• Pro forma income statement

Question 2

What are the components of the sales budget?

Answer 2

The sales budget is a simple composition of volume × price.

Question 3

What factors impact sales prices and sales volumes?

Answer 3

• Increasing or decreasing product prices can shift sales volumes either up or down.
• SWOT: Strengths, Weaknesses, Opportunities, Threats
• PESTLE: Politics, Economy, Social, Technology, Legal, Environment
• Porter’s Five Forces: Supplier Power, Customer Power, Threat of Substitute Products or New Entrants, Intensity of Competition

Question 4

What are common tools employed to reduce uncertainty around the sales forecast?

Answer 4

1. Cross-functional research teams
2. External consultants
3. Customer focus group surveys
4. Leading economic indicators
5. Test markets in controlled (or isolated) regions and customer groups
6. Sophisticated analysis of large internal and external datasets

Question 5

What is the relationship between sales volume and production volume when inventory is present in the budget?

Answer 5

When inventory is present in the budget, the relationship between sales volume and production is: Sales volume + Ending inventory – Beginning inventory = Production volume