Preparation of Sales Forecast in Master Budgeting

This article discusses the significance of sales forecast in the process of preparing the master budget. It explains how sales forecast helps in determining the revenue and profit projections. The article also highlights three ways in which a company can benefit from formal budgeting, including price setting, capital procurement, and flexibility.

Running head: MANAGEMENT ACCOUNTING
Management Accounting
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Table of Contents
Preparation of the sales forecast as one of the earliest steps in preparing the master budget:...2
Three ways of a company can benefit from preparing the formal budget.................................3
References:.................................................................................................................................5

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Preparation of the sales forecast as one of the earliest steps in preparing the master
budget:
A sales budget is regarded as the part of overall master budget. The sales forecast is
used to determine the amount of revenue that would be generated and the amount of profits is
anticipated. The sales budget is a useful in guiding and measuring tools in the overall process
of budgeting and planning. The sales budget is the first step in creating the master budget.
This is because the sales budget is helpful in creating the overall all figures of revenue and
profits (Kaplan & Atkinson, 2015). The projection is required to complete the remaining part
of the budget. A sales budget is regarded as the important step in structuring the overall
budget for the small business. With the accurate projection of the future sales the small
business owners can undertake a well informed decision by keeping the expenditure in check
and protecting the company from declining.
A comprehensive master budget is regarded as the formal statement of the
management anticipation concerning sales, expenditure, volume and other financial
transactions for the upcoming period. At the end of the period, it serves as the device for
control in order to help the management in measuring the performance against the plan in
order to improve the future performance.
There are several budget amounts namely the production budget level, manufacturing
costs, operation expenditure, payments and receipts are reliant on the projected level of sales
volume. Budget can be easily and readily revised in order to reflect the amounts of budget
that is given in the actual level of activity attained during the period (Langfield-Smith et al.
2017). The preparation of the sales forecast is regarded as one of the first step in the
preparation of the master budget because it directly helps in determining the budgeted
amount of sales. The economic trends and the consumer patterns are regarded as the factors

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that play a vital role in ascertaining the sales forecast. The process of formal budgeting helps
in creating the comprehensive picture of the future
With the help of sales budget, the data relating to revenue is easily generated. The
sales amount presented in the sales budget is precise in amount with the sales personnel have
the fastest access to the data. In preparation of the master budget the sales forecast provides
the objectivity of all the budgeted activities.
Three ways of a company can benefit from preparing the formal budget
Formal budgeting helps in creating the comprehensive picture relating to the future
that introduces the awareness and opportunities. This forms the chief cost of the process of
budgeting. Three benefits for preparing the formal budgeting are as follows;
a. Price Setting: Market conditions namely the price of competitors is not treated as the
only parameters but also requires setting of rates and prices. The formal budgets
would help in letting the project utility, rent or other costs so that the manager can
understand the true cost per unit for making their product or delivering their services
(Wouters et al. 2018). Once the management understand the costs, they can set their
prices in order to produce the profits they want. On noticing that the price is high for
the owners to be competitive in their market, the formal budget can help in identifying
the areas where they can lower their costs.
b. Capital and Credit Procurement: The formal budget helps the new business in
expanding as the going concern. The budget represents the potential partners and
participations that would impact the sales and profitability. The most significant
benefit of the formal budgeting is the amount of time the managers should take all
through the year for reviewing the aspects of their operations against the budget. This
would help the management

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c. Flexibility: Formal budget helps in tracking the business performance all through the
year which enables the management and the owners to make necessary changes in
order to restrict the costs or increasing the spending so that they can take the
advantage of the opportunities and growth. Given the marketing is effective, budget
would let the management in knowing the availability of funds to increase their
opportunity of advertising for growing their sales (Maas et al. 2016). On the contrary
if the sales are low, the formal budget helps in reckoning the areas where they can cut
the discretionary costs in order to make the business more competitive or tide the
business goes through the slower period.

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References:
Kaplan, R. S., & Atkinson, A. A. (2015). Advanced management accounting. PHI Learning.
Langfield-Smith, K., Smith, D., Andon, P., Hilton, R., & Thorne, H. (2017). Management
accounting: Information for creating and managing value. McGraw-Hill Education
Australia.
Maas, K., Schaltegger, S., & Crutzen, N. (2016). Integrating corporate sustainability
assessment, management accounting, control, and reporting. Journal of Cleaner
Production, 136, 237-248.
Wouters, M., Selto, F. H., Hilton, R. W., & Maher, M. W. (2018). T Course: Management
Accounting 1 [T-WIWI-102800]. Module Handbook Industrial Engineering and
Management (B. Sc.).