Question

Preparing the Master Budget MANAGERIAL Tom Wills is the majority shareholder and chief executive officer of Hampton Freeze, ACCOUNTING Inc., a company he started in 2006. The company makes premium popsicles using only IN ACTION natural ingredients and featuring exotic flavours, such as tangy tangerine and minty mango. The company's business is highly seasonal, with most of the sales occurring in The issue spring and summer. In 2007, the company's second year of operations, a major cash crunch in the first and Hampton second quarters almost forced the company into bankruptcy. In spite of this cash crunch, 2007 turned out to be a very successful year in both overall cash flow and net income. Partly as a result of that harrowing experience, Tom decided to hire a professional financial manager toward the end of 2007. Tom interviewed several promising candidates for the job and settled on Larry Giano, who had considerable experience in the packaged Foods Freeze, Inc.

Answer 1

Forecasting sales:

In the given case, the company is already in the business of designing and manufacturing hard soled and dress shoes. It plans to introduce a new product line of athletic footwear.

Forecast of sales for new product line:

1. Sales volume in general, is a principal budgeting factor. So all other budgets will be linked to this.

2. Other factors such as sales possibilities, production capacity, availability of materials, labor and other inputs should also be studied.

3. Study the existing market conditions of the product that is to be introduced.

4. Determine the market capacity to estimate the no. of units that can be sold.

5. Study the competitors, their quality of product and pricing strategies.

6. Study the investment requirements so that costing can be determined accordingly.

And sales can be forecasted as:

Expected no. of units to be sold	xxx
× selling price per unit	xx
Total sales	xxx