Assume that you are a sales manager working with your boss to create a sales budget for next year. Once the sales budget is established, it will influence how other departments within your company plan to deploy their resources. For example, the manufacturing manager will plan to produce enough units to meet the budgeted unit sales. If the sales budget is too high it will result in excess inventories and if it is too low it will result in lost sales.

You have studied all of the pertinent data and concluded that the “most likely” outcome is estimated sales of $1,000,000. You also believe that if the sales team works extra hard and has a terrific year, it has a modest chance of achieving an “optimistic” sales forecast of $1,200,000.

Conversely, if the economy sours, you believe that your sales team can still achieve a “pessimistic” sales forecast of $900,000.

Required:

1. Assume that your company uses its sales budget for only one purpose

—to match the supply of manufactured products with customer demand, thereby minimizing inventories and lost sales. What sales2. Assume that your company also uses its sales budget as a motivational tool to help employees strive for “stretch goals” and exceptional results.

What sales forecast would you provide to your boss?

3. Assume that your company’s sales budget is also used for a third purpose—to determine your pay raise, bonus, and potential for promotion. If actual sales exceed the sales budget, it bodes well for your career. If actual sales are less than budgeted sales, it will diminish your financial compensation and potential for promotion. What sales forecast would you provide to your boss?

4. Are your answers to the first three questions the same or different?

Why? If you know from past experience that your boss usually adds 5–

10% to your forecast, how would this affect your answers to the first three questions?

5. Do you think it would be appropriate for your boss to establish the sales budget without any input from you? Why?

6. Do you think the company would allow you to establish the sales budget without any input from your boss? Why?

forecast would you provide to your boss?