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A sales budget is a detailed financial plan that estimates the quantity of goods or services a business expects to sell and the revenue it expects to generate during a specified future period. It is generally the starting point of the overall budgeting process because many other budgets, such as production, purchase, inventory, labour, cash and selling expense budgets, depend upon the expected level of sales. In management accounting, the sales budget is an important tool for planning, coordination, control and decision-making. It helps management determine what the organisation is expected to sell, when sales are likely to occur, and the amount of revenue that can reasonably be expected. The sales budget normally contains two major components: expected sales volume and expected selling price. Sales volume represents the number of units or quantity of products expected to be sold, while the selling price represents the expected price per unit. The estimated sales revenue is calculated by multiplying the expected sales quantity by the expected selling price. Thus, the basic formula is: Estimated Sales Revenue = Estimated Sales Quantity × Estimated Selling Price per Unit For example, if a company expects to sell 10,000 units of a product at ₹500 per unit, its estimated sales revenue will be ₹50,00,000. The sales budget may be prepared for a year and then divided into quarters, months or even weeks, depending upon the nature and requirements of the business. The preparation of a sales budget requires careful analysis because sales forecasts are affected by numerous internal and external factors. Management cannot simply assume that previous sales will continue at the same level. It must consider historical sales, market conditions, consumer demand, competition, pricing policies, advertising, distribution arrangements, economic conditions and the organisation's production capacity. The first step in preparing a sales budget is to establish the purpose and period of the budget. Management determines whether the budget is to be prepared for one year, six months, a quarter or a shorter period. An annual sales budget is generally divided into shorter periods to facilitate effective planning and control. Monthly or quarterly estimates make it easier to ________ _________ ___ ____ _________.
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