"It is most sensible to start with the sales budget and develop the other budget from there." With regards to budget processes and procedures, analyse the validity of this statement. Do you agree...

"It is most sensible to start with the sales budget and develop the other budget from there."

With regards to budget processes and procedures, analyse the validity of this statement. Do you agree with the statement? Justify your answer. How should sales revenues be considered when determining other costs?

Asked on by sukhnjot

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kipling2448 | (Level 3) Educator Emeritus

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The statement -- "it is most sensible to start with the sales budget and develop the other budget from there" -- is entirely valid.  Corporate budgeting processes routinely begin with an assessment of the quantity of products expected to be sold, the prices for which those products are sold, and the net revenue following deductions for sales promotions and related marketing activities.  

As the information provided in the summaries the URL links for which are provided below demonstrate, projections of anticipated sales set the stage for broader budgetary considerations.  Such data is used in calculating the amount of money available for other tasks, including design, engineering, manufacturing, and packaging.  The weakness, however, lies in the uncertainty inherent in prognostications concerning future sales.  When a history of past sales is available, and assuming no major market perturbations, such forecasts can prove valuable.  Sales predictions involving a new product, however, or an existing product that may be losing its appeal to consumers because of increased competition or a failure to maintain quality control standards can be very nebulous.  That said, to reiterate, the premise of the question is valid.

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