1. Explain Steps to Prepare a Sales Budget Manually and solve the following scenario given below.(amount for the products may change)

Solve the following example by creating a sales budget.

Let's say a company named “Organic Products” sells two products, Product A and Product B, and needs a sales budget for the upcoming quarter or a year

Assumptions

● Product A:

○ Estimated Sales Volume: 4,000 units ○ Selling Price: $30 per unit

● Product B:

○ Estimated Sales Volume: 4,000 units ○ Selling Price: $10 per unit

● Expected Sales Discounts: $500 (for both products combined)

Expected Sales Returns: $300 (for both products combined)

Solution for "Organic Products" Sales Budget

Step 1: Gross Sales Calculation

  • Product A: Estimated Sales Volume = 4,000 units, Selling Price per Unit = $30
  • Gross Sales for Product A: $120,000
  • Product B: Estimated Sales Volume = 4,000 units, Selling Price per Unit = $10
  • Gross Sales for Product B: $40,000
  • Total Gross Sales: $160,000

Step 2: Adjustments

  • Expected Sales Discounts: $500
  • Expected Sales Returns: $300
  • Total Adjustments: $800

Step 3: Net Sales Revenue

Net Sales = Total Gross Sales - Total Adjustments

Net Sales = $160,000 - $800 = $159,200

Sales Budget for "Organic Products"

Particulars Product A Product B Total
Estimated Sales Volume 4,000 units 4,000 units
Selling Price per Unit $30 $10
Gross Sales $120,000 $40,000 $160,000
Less: Sales Discounts $500
Less: Sales Returns $300
Net Sales Revenue $159,200

 2. List and explain the types of budgeting.

A financial budget in a plan that outlines organisations or individuals Financial goals & how they intend to achieve them over a specific period.. typically a year. financial budget includes estimater of Income & expenses, serving as tool for tracking financial performance & making informed decision.

Financial budget are crucial tools that helpe organisations plan, allocated resources d acheive financial objectives. Understanding the concept of various types of financial budget is essential for effective financial management.

This section classified into different types of financial budget & their components.

1) Operating budgets 

Operating budget is refers to guiding the day by day operations & facilitate decision making regarding resources allocation & revenue generation. Operating budget are comprehensive financial plans that outlines projected revenues & expenses for a specific period. of time. Some example include

  • Sales budget :- The sales budget Forecasts expected salo revenue based on historical data, market trends & salp Forecasts.
  • Production budget: This budget estimator the number of units to be produce to meet sales target & fulfill coustomer demand.
  • Operating expenses budget: It outlines anticipated (expected) expenses related to operations such as salaries, utilities & marketing expenses.

2) Capital budget

Capital budget focus on long term investment in assets that yield benefits over served accounting methods A capital budget is a long term plan that outlines the financial demands of a investment, development or major purchase. Capital budgeting is a process of analysing evaluating & prioritizing investment in large scale projects that typically requires significant amount of funds.

3) fixed budget 

Based on a fixed level of activity. It door change, regardless of fluctuations in sales ordproduction level. This type of budget is typically used for activities where cost & revenue are expected to remain relatively stable & predictable. A fixed budget is a financial plan that in set for specific period & does not change.

4) Production budget

It is mainly used in manufacturing & focuses on the number of units to be produced in a specific period of time such as a month quarter year & desired levels of inventory.

5) Operating expense budget 

This budget is a detailed financial plan that estimates the cost af business that will incur to run day-to-day operations over specific period of time typically a year. This budget is crucial for managing & controlling the expenses necessary to maintain the business or functions. 

3. Elaborate Benefits of Budgeting.

1. Gives you control over your money 

Knowing that you have a good budget to fall back on each month will give you the confidence and peace of mind of knowing you're in control of your money. It beats the 'spend and hope' approach where you don't pay attention to your bank balance and hope there is money left in your account when you come to pay. 

2. Helps you focus on your financial goals

Planning for the future and working to an objective allows you to plan big purchases, like houses and cars, without worrying you'll miss the mark. Sticking to your budget and putting money aside will bring you a step closer to achieving your financial goals.

3. Keeps you on top of what you're spending

You'll be surprised at how much you spend on essential things, like bills, rent/mortgage, and food. Most of us will have vastly underestimated our monthly or weekly spend by forgetting how much we spend on other items like TV license and commuting. 

Laying all of your expenses out clearly will help you plan better while identifying areas where you might be able to save some money. Changing your mobile phone contract or switching to a more affordable tariff with a new energy provider are just two areas where you can make some savings.

4. Makes it easier to stay aware of your savings and debts

We have already said that the budget planner helps you stay on top of what you are spending but what about the money you are putting away or using to pay off debts? A good budget will keep you aware of when your debts will be paid off and identify when you may have additional money that you can redirect into savings or spend on an occasional treat.

5. Helps you to save for unexpected costs

It's always safe to expect the unexpected. If your boiler breaks in the middle of winter, or your oven stops working, you'll want to make sure you have some money set aside to deal with it. Careful budgeting can help take the sting out of unexpected bills by making sure you have a pot of money to fall back on when you need it the most. 

6. Makes talking about money with your family easier

Budgeting is easier when there’s open communication between everyone involved and your family lends their support for your efforts. Talking to your family when you need to tighten the purse strings not only ensures they’re aware of financial constraints, but also brings them in as part of the solution. Working together with honest and open communication is immeasurably helpful when it comes to healthy spending.

7. Shows you where money issues are likely to come from

Much in the same way a guard dog alerts you to danger before you see it, a good budget will show you where the risks to your financial stability are before they become a problem. If things look a little tight, you can address them before they get out of control. Thinking proactively about your spending and saving will save a lot of stress and worry and in the long run.

8. Helps you figure out what you can borrow

Despite your careful planning, there may be times when you will need to borrow money on a credit card or via a loan to keep things ticking along. It is absolutely essential to have a good understanding of what you can afford to pay back each month before borrowing money. Your budget will be crucial here and an essential tool to help you work out how much you can comfortably borrow, and then ensure your repayments are taken into account amongst your normal outgoings.

4. Define and explain the steps to prepare a flexible budget.


Definition 

A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible budget is more sophisticated and useful than a static budget. (The static budget amounts do not change. They remain unchanged from the amounts established at the time that the static budget was prepared and approved.)

For costs that vary with volume or activity, the flexible budget will flex because the budget will include a variable rate per unit of activity instead of one fixed total amount. In short, the flexible budget is a more useful tool when measuring a manager’s efficiency.

Example of flexible budget

let's assume a company determine that its cost of electricity end supplier will vary by approximately $ lo for each machine hours (MH) Used. It also knows that other costs are fixed costs of approximately $ 40000 par monthh. Typically the machines hours are between 4000 and 7000 hours per month based on thir information the flexible budget for each month would be $40000+ $ 10 per month.

Now let's illustrate the flexible budget using different levels of volume is 5000 machine levels machine hours were necessary for the month of january the flexible budget for january will be $90000 ($40000 fixed + $ 10x5000MH) If the machine hours in febuary are 6300 hours then the flexible budget) for february will be $103000. ($40000 Fixed + 10x6300 MH) If Mukesh har 4100 machine hours the flexible budget for machine will be $81000 ($40000 fixed + 10 x 4100 MH).

How to construct a flexible budget 

1) Identify all fixed coste & segregate them in the budget model. 

2) Determine the extent to while all variable costs changer as activity measures changes.

3) Create the budget model where fixed cort are hand coded into the model & variable cost. dib of the relevant activity measures of activity measures. ant started as a percentage or as a cost per unit.

4) Enter actual activity measure into the model after an accounting period has been completed. This updates the variable corte in the flexible budget.

6) Enter the resulting flexible budget for the completed periode into the accounting system for comparison to actual expenses.

5. Discuss the importance of Budgeting



1. Setting of Goals

Budgeting involves planning. It serves as a roadmap to achieve the end goal of an individual or an entity. It prioritizes the objectives and provides a strategy to allocate the available resources accordingly. A goal can be to expand the business, save, generate more revenue, etc.

2. Financial Stability

Preparing a well-planned budget helps in better planning and contributes to the overall financial stability of the business. A structured budget suggests a strategy to spend the money which reduces the financial stress of the business and provides a sense of security.

3. Decision-Making

As said earlier, a budget is a roadmap to achieve the goal of the business, it also helps to make informed decisions according to the end goal of the business. Entities will sometimes be faced with large decisions that will impact their inflow and outflow of cash. With a budget, it would be easy to make better decisions.

4. Identify Income and Expenses

Identifying all the sources of income and categorizing all expenses ensures that a business has a comprehensive view of its financial inflows and outflows. It helps in determining the area where the spending needs to be controlled.

5. Co-ordination

It encourages managers to build relationships with the other parts of the organisation and understand how the various departments interact with each other. This maintains coordination among various departments in an organisation.


6. What is the financial budget? Explain with examples.


A financial budget in a plan that outlines organisations or individuals Financial goals & how they intend to achieve them over a specific period.. typically a year. financial budget includes estimator of Income & expenses, serving as tool for tracking financial performance & making informed decision.

Financial budget are crucial tools that helpe organisations plan, allocated resources d achieve financial objectives. Understanding the concept of various types of financial budget is essential for effective financial management.

Examples of Financial Budgets:


1. Personal Financial Budget


Monthly Income: ₹50,000

Fixed Expenses:

  • Rent: ₹15,000
  • EMI: ₹5,000

Variable Expenses:

  • Groceries: ₹8,000
  • Utilities: ₹3,000
  • Entertainment: ₹4,000
Savings: ₹10,000
Contingency Fund: ₹5,000

Outcome: This budget ensures the person does not overspend and allocates a portion of income toward savings.

2. Corporate Financial Budget

Quarterly Revenue: ₹20,00,000

Expenses:

  • Salaries: ₹10,00,000
  • Marketing: ₹2,00,000
  • Office Rent: ₹1,50,000
  • Miscellaneous: ₹1,00,000
Profit Allocation:
  • Business Expansion: ₹3,00,000
  • Emergency Fund: ₹50,000
Outcome: The company ensures sufficient funds for operational costs, profit reinvestment, and contingencies.

7. Explain Fixed budget and capital budget.

1. Fixed budget 

Based on a fixed level of activity. It door change, regardless of fluctuations in sales ordproduction level. This type of budget is typically used for activities where cost & revenue are expected to remain relatively stable & predictable. A fixed budget is a financial plan that in set for specific period & does not change.

2. Capital Budget

Capital budget focus on long term investment in assets that yield benefits over served accounting methods A capital budget is a long term plan that outlines the financial demands of a investment, development or major purchase. Capital budgeting is a process of analysing evaluating & prioritizing investment in large scale projects that typically requires significant amount of funds.