Class: ACCT-301 --> WEEK 6: BUDGETING
Why does a company budget for sales first? What do you think should be budgeted after sales?
A company first prepares Sales Budget for the relevant period. It is because sales measures how many units a company will be able to sell in the market. Once we come to know the approximate units to be sold we can start manufacturing them.
If we do not prepare sales budget first and produce as per our production capacity we may very well end up with either a huge stock of inventory (we produce more and demand is less) or we may lose sales (we produce less and demand is more).
Hence a company shall always budget for sales first so that it can get an idea as to how many units are to be produced and plan accordingly.
After Sales, the next thing to budget is Production.
Production = sales+closing-opening
If opening FG is 100 units, sales are budgeted at 150 units and company wants to keep a closing stock of 110 units, then production of number of units = 150+110-100 = 160 units are required to be produced.
Class: ACCT-301 --> WEEK 6: BUDGETING Why does a company budget for sales first? What do...
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