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Running head: SALES BUDGETING 1 Sales Budgeting Assessment # 2 MBA-FP6154 Sylvett Porter Capella University SALES BUDGETING Complete the Following 1. Prepare the sales budget for the first quarter. You may use the Sales Budget Template found in the Resources under the heading, Capella Resources. 2. Calculate the expected cash collections for the first quarter. 3. Calculate the accounts receivable balance based on the given information at the end of the first quarter. 4. Based on the sales price, calculate the breakeven point for the quarter in dollars and units if the total fixed costs for the quarter are $400,000 and variable costs are 20% of sales. 5. Determine the level of sales (in dollars) needed to reach an operating profit (or income) target of $575,000 by the end of the first quarter. 2 SALES BUDGETING 3 Calculations: SALES Budgeted Sales in Units Selling Price Per Unit Total Sales January 40000 10 =B4*B5 February 55000 10 =C4*C5 March 60000 10 =D4*D5 SCHEDULE OF EXPECTED CASH COLLECTIONS: November December January February March Total Cash Collections ACCOUNTS RECEIVABLE BALANCE =34000*10*30% =380000*40% =400000*30% =380000*30% =400000*40% =550000*30% =SUM(B10:B14) =SUM(C10:C14) =400000*30% =550000*40% =600000*30% =SUM(D10:D14) 0 165000 =F14 4)BEP (units) = Fixed costs /contribution per unit 400,000/8 50000 units BEP(dollars) = fixed costs/ contribution margin 400,000/80% 500000 dollars 5)Sales (in dollars) = (400,000 + 575,000)/80% 1218750 dollars SALES BUDGETING 4 Sales Budgeting The sales budget is an itemization of sales expectations and estimated earnings. It is usually in a monthly or quarterly format and in both units and dollars (Accounting Tools, 2016). The sales budget is the first step in creating a master company; it sets goals for the company, but also lays the groundwork for the other budgets in the company. Generally, a company must know how many products it will sell and how much revenue will be generated before determining purchasing budgets. The sales budget is crucial to the budgeting process because every other budget is based on the sales budget. A sales budget estimates the sales in units as well as the estimated earnings from these sales. The management team analyzes different variables such as selling expenses, production capacity, selling expenses and competition when planning the budget. All of these factors are a contributory element and indicator of an organization's future performance. In simpler terms the sales budget indicates or forecasts what is expected to sell and the subsequent sales that will be collected from the sales. In order for management to develop the estimates, they must collaborate with other involved and applicable personnel in order to develop a realistic and valid budget. For instance, the market manager will provide promotional material and the procurement manager may offer information about new and expired products. Additionally, the chief executive officer may revise SALES BUDGETING 5 these figures for the sales of any subsidiaries or product lines that the company plans to terminate or sell during the budget period[ CITATION Acc16 \\l 1033 ]. According to Accounting Tools.com., 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. The unit price may be adjusted for marketing promotions. If any sales discounts or returns are anticipated, these items are also listed in the sales budget. There is an interrelationship between the sales budget and preparation of financial reports. Planning and enactment of budget processes are dependent upon the accounting of pastyear and current-year expenditures, revenues, transfers and prior year adjustments[ CITATION Cal13 \\l 1033 ]. Sales Budget Analysis Recommendation Conducting a breakeven analysis will help determine when an organization can expect to a see a profit after the organization pays its expenses. In order to adequately conduct this analysis, all fixed and variable costs must be identified. This break-even analysis aids in determining if would be a sound and wise financial decision to sell or produce a particular product. References J. Hoyle, T. S. (2009). Advanced Accounting . New York City: Mcgraw-Hill/Irwin. Klatt, G. R. (n.d.). What is the comprehensive annual financial report (CAFR). Retrieved 3 31, 2016, from Propertyrightsresearch.org: http://www.propertyrightsresearch.org/what_is_the_comprehensive_annual.htm SALES BUDGETING 6 Moglia, S. (2011, 10 11). A look into the importance of budgets for government and not-forprofits. Retrieved 3 31, 2016, from Nonprofit GPS: http://www.hhcpa.com/blogsonprofit-accounting-services-blog/a-look-into-the-importance-of-budgets-for-governmentsand-not-for-profits/ State of Nevada . (2015). Comprehensive Annual Financial Report . Nevada. Use the background information presented below to prepare an operating budget. Background You are the budget officer for Axle Manufacturing. It is the beginning of the 2015 year, and it's time to create the operating budget. You have collected the budgeting information from the various departments which are summarized in the following tables: Sales Forecast and Selling Price for 2015 First Quarter Project Sales in Units Second Quarter Third Quarter Fourth Quarter 2,500 2,725 2,600 2,100 $325.00 $325.00 $325.00 Selling Price $325.00 Manufacturing Cost Estimates for 2015 Variable Manufacturing Costs Unit Cost Direct Materials 3.5 feet per unit at $2.75 per foot $9.63 Direct Labor 2 hours per unit at $12 per hour $24 Variable Overhead $16 per unit $16 Fixed Manufacturing Overhead $23,000 per quarter $23,000 Operating Cost Estimates for 2015 Variable Operating Expenses per $7.25 Unit to Be Sold Fixed Operating Expenses per Quarter $45,000 Inventory Data for 2015 Units Total Value Finished Good Inventory, January 1 400 $30,100 Finished Good Inventory, December 31 920 $56,011 Materials Inventory, January 1 3,000 $9,000 Materials Inventory, December 31 4,375 $15,312 Note: All materials in the Materials Inventory are direct. Quarterly target finished goods inventory equals 40 percent of the next quarter sales. Quarterly target materials inventory equals 50 percent of material required for the quarter's production. Complete the Following Prepare the operating budget portion of the master budget, including the following components: Sales budget. Production budget. Cost of goods sold budget. Selling and administrative expense budget. Use the background information presented below to prepare an operating budget. Background You are the budget officer for Axle Manufacturing. It is the beginning of the 2015 year, and it's time to create the operating budget. You have collected the budgeting information from the various departments which are summarized in the following tables: Sales Forecast and Selling Price for 2015 First Quarter Project Sales in Units Second Quarter Third Quarter Fourth Quarter 2,500 2,725 2,600 2,100 $325.00 $325.00 $325.00 Selling Price $325.00 Manufacturing Cost Estimates for 2015 Variable Manufacturing Costs Unit Cost Direct Materials 3.5 feet per unit at $2.75 per foot $9.63 Direct Labor 2 hours per unit at $12 per hour $24 Variable Overhead $16 per unit $16 Fixed Manufacturing Overhead $23,000 per quarter $23,000 Operating Cost Estimates for 2015 Variable Operating Expenses per $7.25 Unit to Be Sold Fixed Operating Expenses per Quarter $45,000 Inventory Data for 2015 Units Total Value Finished Good Inventory, January 1 400 $30,100 Finished Good Inventory, December 31 920 $56,011 Materials Inventory, January 1 3,000 $9,000 Materials Inventory, December 31 4,375 $15,312 Note: All materials in the Materials Inventory are direct. Quarterly target finished goods inventory equals 40 percent of the next quarter sales. Quarterly target materials inventory equals 50 percent of material required for the quarter's production. Complete the Following Prepare the operating budget portion of the master budget, including the following components: Sales budget. Production budget. Cost of goods sold budget. Selling and administrative expense budget