Sales Budgeting

FINANCIAL STATEMENT ANALYSIS & BUDGETING

Week 9 – IUP/Regular Class

 The Components of

Operating & Financial

Budget
1 2

Operating budgets generally Financial budgets generally

consist of: consist of:

• Sales Forecast • Cash Budget

• Sales Budget • Projected Balance Sheet
• Production Budget • Projected Account Receivable
• Finished Goods Inventory Budget • Projected Account Payable
• Direct Material Inventory Budget
• Direct Material Purchased Budget
• Direct Material Cost Budget
• Direct Labor Cost Budget
• Factory Overhead Cost Budget
• Marketing Expenses Budget
• General & Administrative Budget
• Projected Income Statement
Sales Budget & Sales
Forecast
• The first step in the budgeting
process is a sales forecast, which is
the prediction of expected sales
during the budget period.
• The responsibility for determining
the sales forecast is borne by top
level marketing officer.
• Sales forecast is the starting point of
all budgeting, because all budgets
(i.e. elements of the master budget)
depend on sales forecast.
 • The accuracy of the sales forecast will determine
the reliability of all budget schedules.
• Therefore, the sales forecast is the most
important and most difficult step.
• It is very difficult because sales are affected by
various factors, namely:
 Past sales  Population
 Industrial conditions  Quality of sales personnel
 GNP dan Disposable Income  Production Capacity
 Advertising  Prediction of sales force
 Changing consumer preference  Government regulation

Overview of Sales Forecast & Factors Affecting It

Sales Forecast & Its Reliability (1)

 • Not only are these factors uncontrollable, but it is
also difficult to determine which factors affect
sales, and to what extent the impact is.

• Sales executives, with the help of other parties,

are expected to consider above factors, and
generates either subjectively or statistically, an
accurate sales prediction for budget periods.

Overview of Sales Forecast & Factors Affecting It

Sales Forecast & Its Reliability (2)

Forecast Techniques (1)
1) Judgment method, the opinions used as the basis are:
 Sales force's opinion
 Sales Manager's opinion
 Expert's opinion
 Consumer Survey

2) Forecast based on statistical calculations

Trend analysis, with the following methods:
 Application of trend lines freely
 Semi average method
 Application of trend lines mathematically:
• Moment Method
• Least Square Method
Forecast Techniques (2)
3) Forecast with special method
 Industry Analysis, carried out by linking the
company's sales potential with the industry in
general, in the sense of:
• Volume
• Position in competition
If the market share increases, it means that the
company has a strong position in the competition,
and vice versa.
Industry analysis is carried out by:
• Making projections of industrial demand
• Assess the company's position by comparing its
market share
• Projecting the company's market share position in
the future
Forecast Techniques (3)

3) Forecast with special method

 Product line analysis, usually carried out by
companies that produce more than one type of
product, in which each type of product is
forecasted separately.
 End User Analysis
• The analysis is carried out by companies
that produce goods that cannot be directly
consumed, but are further processed by
other industries.
• The end user is that other industry, whose
development must be analyzed.
#1:
SEMI
AVERAGE
Method
  Divide the data into 2 groups. If the total number of data is odd,
then before dividing into two groups, it must be adjusted first.
One of the adjustments that can be made is by duplicating the
data located in the middle so that the total of all data becomes
an even number. Then they were divided into two groups with
the same number of members in each group.
 Determine the base period, using the middle year of group I
data. If the data is even, then the base period lies between the
two middle years.
 Determine the Year Number. If the total number of years is odd
then the number of years starts with 0; for example: -2, -1, 0 , 1,
2. If the total number of years is even then 0 is the number in
the base period. The numbers for the nearest year are -1 and 1,
the increase or decrease in the year number is 2; e.g. -3, -1, 1, 3
 Determine the Semi average for each data group. The Semi
Average for group I is the semi total for group I divided by the
number of data for group I. In the same way, the Semi Average
for Group II is also calculated.

Step-by-step Guidance of Semi Average Method

Steps of Semi Average Method (1)

  From the above calculations, the values of a and b
are determined to obtain an equation function for
forecasting.
 The value of a is determined based on the Semi
Average value for the group whose middle year is
used as the base period.
 Determine the value of b by dividing the difference
between the Semi Average values of groups II and I
by the number of data in the group.
 Determine the Forecasting Function Y= a+ bX, where
X is the estimated year number.

Step-by-step Guidance of Semi Average Method

Steps of Semi Average Method (2)

#2:
MOMENT
Method
#3:
LEAST
SQUARE
Method
 Thank You!

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