Budgeting Basics and Beyond

9.1. Illustration

To illustrate how all manufacturing cost budgets are put together, consider a manufacturing company called the Worth Company, which produces and markets a single product.

Sales Budget

The sales budget is the starting point in preparing the manufacturing budget, because estimated sales volume influences nearly all other items appearing throughout the master budget. The sales budget should show total sales in quantity and value. The expected total sales can be break-even, target income, or sales. The budget may be analyzed further by product, territory, customer, and seasonal pattern of expected sales.

Example 1

Table 9.1. THE WORTH COMPANY Sales Budget For the Year Ending December 31, 20B

		Quarter
	1	2	3	4	Total
Expected sales in units	800	700	900	800	3,200
Unit sales price	× $80	× $80	× $80	× $80	× $80
Total sales	$64,000	$56,000	$72,000	$64,000	$256,000

Production Budget

The production budget is a statement of the output by product and is generally expressed in units. It should take into account the sales budget, plant capacity, whether stocks are to be increased or decreased, and outside purchases. The number of units expected to be manufactured to meet budgeted sales and inventory requirements is set forth in the production budget.

The expected volume of production is determined by subtracting the estimated inventory at the beginning of the period from the sum of the units expected ...