Budget and Accounting for Control

Question: It is most sensible to start with the sales budget and develop the other budget from there. After what you have learned this week with regards to budget processes and procedures, analyze the validity of this statement. Do you agree with the statement? Justify your answer based on the weeks readings. How should sales revenues be considered when determining other costs? Answer: The sales budget is mostly the prime step in the development of master budget. Therefore, it is sensible to commence the budgeting process in context with sales budget. The sales are considered as the dominant limiting factor hence it can be agreed to start with sales budget (Araman and Popescu, 2010). The programs can be determined in number of departments if the sales budget is done effectively on the basis of last year figure of sales or accurate research. The budgets and initiatives of the company are reliant on the assumption of the company that they can earn for a fiscal year. Therefore, when the company has a good understanding of what sales revenue they can generate then the company can assign resources to other departments of the company or business (Bauman, Bauman and Das, 2010). For instance, a company that manufactures the proverbial widgets can have a budget that at $2 each, they can make sell of 1 million widgets. Therefore, the projected revenue of the company can be $ 2 million dollars. Thus, accordingly this may affect the budget for raw materials. In such case, the company may will to buy and prepare budget for raw materials for approx 1 million widgets in order to be on the safer side. However, in employing the resources in wisely manner, the company may not budget money in order to purchase the raw materials for the additional 3 million widgets. Therefore, it can be considered unwise and desecrate of resources on the basis of sales budget. The company may be left with high raw material inventory on hand and can incur carrying cost. Thus, the company may not will to reap all the sales possible (Eldomiaty, 2010). Thus, it can be said that sales budget has to be prepared first and then other budget has to be followed. On the other hand, the other budgets can be affected by the sales budget. The human resources or direct labor engaged in the manufacture of widgets can be relied on the sale of one million widgets. Therefore, the company may need around 100 workers that can work full time in the year. Thus, the direct labor costs can be known by the company on the basis of their sales budget (Currie and Rowley, 2010). On the other side, the costs can also be applied on the capital expenditures or overhead. Thus, the company can assign finance in order to purchase or upgrade suppose one machine on the basis of sale of one million widgets. Hence, it can be concluded that in order to determine other costs, sales revenue has to be considered (Eldomiaty, 2010). As, the sales revenue is the amount that is realized from the transaction of goods and services and the company incur costs so that goods can be produced and service can be rendered. Therefore, without analyzing the sales revenue, the company may n ot be able to predict the right amount of cost that they have to incur (Fellner et al., 2006). Moreover, it can affect the long term goal of the company. Thus, sales revenue has to be taken in account for computing other related costs. References Araman, V. and Popescu, I. (2010). Media Revenue Management with Audience Uncertainty: Balancing Upfront and Spot Market Sales. Manufacturing Service Operations Management, 12(2), pp.190-212. Bauman, C., Bauman, M. and Das, S. (2010). Valuation consequences of regulatory changes in revenue recognition: Evidence from advertising barter sales. Advances in Accounting, 26(2), pp.177-184. Currie, C. and Rowley, I. (2010). Consumer behaviour and sales forecast accuracy: What's going on and how should revenue managers respond?. Journal of Revenue and Pricing Management, 9(4), pp.374-376. Eldomiaty, T. (2010). The contribution of sales revenue management to firm growth: a test of two competing models. International Journal of Revenue Management, 4(2), p.131. Fellner, K., Kallesen, R., Ruggiero, A. and Yuen, B. (2006). Improving revenue through fare rationalization and a new business process between revenue management and sales. Journal of Revenue and Pricing Management, 5(2), pp.118-127.