FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
Key learning outcomes: By the end of the lesson, students will be able to:
* Discuss qualitative and quantitative methods of forecasting revenue.
* Discuss the factors affecting revenue forecasting.
* Prepare a sales budget for a merchandising firm and a revenue (or fees) budget for a
professional services firm.
CHAPTER 3 – SALES & REVENUE BUDGETS
5. Sales budgets
PxQ
a. SALES BY PRODUCT
Est. sales volume (units) x Est. sales price ($) = Est. total sales ($)
(PRODUCT 1 volume) x (PRODUCT 1 price)
A: Hays Ltd
* Produces three (3) different types of school bags, each for a different market - small kids at kindy, medium for
students at primary school and large for students at high school.
* The sales manager has put together a forecast for the coming year. His team should be able to sell 12,000 small
bags for $20 each, 9,600 medium-sized bags for $30 each and 8,000 large bags for $40 each.
Required: Prepare the sales budget for the year ended 30 June 2013.
SOLUTION: Hays Ltd
Sales budget for the year ended 30 June 2013
Bag size (PRODUCT) Est. sales volume Est. sales price (P) Est. total sales ($)
(units) (Q)
Small 12,000 $20 $240,000
Medium 9,600 $30 $288,000
Large 8,000 $40 $320,000
Total 29,600 $848,000
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FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
* The next example uses prior period figures adjusted for factors likely to affect future sales *
B: Gourmet Biscuits
* Is a retailer of specialty biscuits which are sold in one kilo lots.
* It is estimated that demand for PLAIN will decrease by 10%, demand for CHOCOLATE will increase by 12.5% and
demand for ICED will decrease by 5%.
* There will be an across-the-board price increase of 5%.
Gourmet Biscuits Ltd
Actual sales for the year ended 30 June 2012
Flavour (PRODUCT) Sales volume (kilos) Sales price Total sales ($)
(Last Year) (Q) (Last Year) (P) (Last Year)
Plain 50,000 $8.00 $400,000
Chocolate 40,000 $7.00 $280,000
Iced 30,000 $5.00 $150,000
Total 120,000 $830,000
Required: Prepare the sales budget for the year ended 30 June 2013.
SOLUTION: Gourmet Biscuits Ltd
Sales budget for the year ended 30 June 2013
Flavour (PRODUCT) Est. sales volume Est. sales price Est. total sales ($)
(kilos) (Q) (P)
Plain 50,000 x 0.9 = 45,000 $8.00 x 1.05 = $8.40 $378,000
Chocolate 40,000 x 1.125 = 45,000 $7.00 x 1.05 = $7.35 $330,750
Iced 30,000 x 0.95 = 28,500 $5.00 x 1.05 = $5.25 $149,625
Total 118,500 $858,375
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FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
b. SALES BY PERIOD
Est. sales volume (units) x Est. sales price ($) = Est. total sales ($)
(PERIOD 1 volume) x (PERIOD 1 price)
* Sales budgets produced so far have been for one year *
* Typically, budgets can also be broken down by quarter and/or month *
C: Canon Ltd
* Manufactures calculators.
* Provides you with an estimate of sales figures for the quarter ended 30 September 2013.
* It is predicted that 1,500 calculators will be sold for $35.00 each (on average) in July; 2,500 calculators will be sold
for $34.00 each (on average) in August; and 2,200 calculators will be sold for $36.00 each (on average) in
September.
Required: Prepare the sales budget for the quarter ended 30 September 2013.
SOLUTION: Canon Ltd
Sales budget for the quarter ended 30 September 2013
Month (PERIOD) Est. sales volume (Q) Est. sales price (P) Est. total sales ($)
July 1,500 $35.00 $52,500
August 2,500 $34.00 $85,000
September 2,200 $36.00 $79,200
Total 6,200 $216,700
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FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
c. SALES BY PRODUCT and PERIOD
Est. sales volume (units) x Est. sales price ($) = Est. total sales ($)
(PRODUCT 1; PERIOD 1 volume) x (PRODUCT 1; PERIOD 1 price)
* Sales budgets can be prepared to show details for individual products by period *
D: Sarah Lee
* Operates a mobile fast food business that sells soft drinks & pies at major sporting events.
* Provides you with the actual sales figures for the quarter ended 30 June 2012.
Required: She asks you to prepare the sales budget for the quarter ended 30 June 2013, assuming that next financial
year, the price of each soft drink will increase by 50c and the price of each pie will increase by $1.00. Despite price
rise, Sarah expects the demand for these items to increase by 5%.
Sarah Lee
Actual sales for the quarter ended 30 June 2012
Pies Soft Drinks
Month (PERIOD) Units (Q) Price (P) Total sales Units Price (P) Total sales
($) (Q) ($)
April 10,500 $3.00 $31,500 21,000 $2.50 $52,500
May 10,000 $3.00 $30,000 20,000 $2.50 $50,000
June 11,500 $3.00 $34,500 23,000 $2.50 $57,500
Total 32,000 $3.00 + $1.00 = $96,000 64,000 $2.50 + $0.50 $160,000
$4.00 = $3.00
Calculate the average sales price for each product.
SOLUTION: Sarah Lee
Sales budget for the quarter ended 30 June 2013
Pies Soft Drinks
Month Units (Q) Price Total Units (Q) Price Total TOTAL ($)
(PERIOD) (P) sales ($) (P) sales ($)
April 10,500 x 1.05 $4.00 $44,100 21,000 x 1.05 $3.00 $66,150 $110,250
= 11,025 = 22,050
May 10,000 x 1.05 $4.00 $42,000 20,000 x 1.05 $3.00 $63,000 $105,000
= 10,500 = 21,000
June 11,500 x 1.05 $4.00 $48,300 23,000 x 1.05 $3.00 $72,450 $120,750
= 12,075 = $24,150
Total 33,600 $134,400 67,200 $201,600 $336,000
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FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
d. SALES BY AREA
Est. sales volume (units) x Est. sales price ($) = Est. total sales ($)
(AREA 1; PERIOD 1 volume) x (AREA 1; PERIOD 1 price)
* Sales budgets can be prepared to show details for individual products by period *
E: Apple Inc.
* Operate several retail outlets across Sydney, their top two being the Chatswood Chase store and the City store.
* Sells two (2) types of MacBook Pros – a 13-inch and a 15-inch.
* Provides you with estimated sales prices & volumes for the quarter ended 31 December 2012.
* A price increase of 2% across all Apple products starting on 1 October 2012 is being considered by the leadership
team. Given the price increase, demand for each of these products is expected to fall by 2%.
Required: Prepare a sales budget for the quarter ended 31 December 2012 by retail store.
SOLUTION: Apple Inc.
Sales budget for the quarter ended 31 December 2012
MacBook Pro 13-inch MacBook Pro 15-inch
Store Units (Q) Price (P) Total Units (Q) Price (P) Total TOTAL ($)
sales ($) sales ($)
Chatswood 150 x 0.98 $1,350 x 1.02 $202,419 200 x 0.98 = $2,000 x 1.02 $399,840 $602,259
Chase = 147 = $1,377 196 = $2,040
City 200 x 0.98 $1,350 x 1.02 $269,892 100 x 0.98 = $2,000 x 1.02 $199,920 $469,812
= 196 = $1,377 98 = $2,040
Total 343 $472,311 294 $599,760 $1,072,071
Is the planned price increase a good idea?
Apple Inc.
Sales budget for the quarter ended 31 December 2012 (prior to planned price increase of 2%)
MacBook Pro 13-inch MacBook Pro 15-inch
Store Units (Q) Price (P) Total Units (Q) Price (P) Total TOTAL ($)
Location sales ($) sales ($)
Chatswood 150 $1,350 $202,500 200 $2,000 $400,000 $602,500
Chase
City 200 $1,350 $270,000 100 $2,000 $200,000 $470,000
Total 350 $472,500 300 $600,000 $1,072,500
No because no additional sales revenue will be generated as a result of the price increase based on the fact that the
price increase is predicted to cause a small drop in demand for each of these products. In reality, demand for the
product may not change at all, however, it could also drop quite significantly. Is it worth taking the risk given that
Apple Inc. won’t be significantly better off following the price rise.
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FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
6. Fees income budgets
Est. sales volume (units) x Est. sales price ($) = Est. total sales ($)
(chargeable hours) x (hourly rate) = (total fees income)
F: Janet Hardy & Associates
* Janet Hardy owns a small Accounting practice in the City.
* Last year, 11,000 hours were charged to various clients and the average hourly rate charged to these clients was
$110. Janet recently had some market research done which indicated that her practice controls 10% of the market
and that this should rise to 12% next year.
* Janet has decided to increase her hourly rate charged to clients by 5%.
Required: Prepare a fees income budget for Janet for the year ended 30 June 2013.
SOLUTION: Janet Hardy & Associates
Fees income budget for the year ended 30 June 2013
(Q) Est. client hours (refer note below) 13,200
(P) Est. hourly rate $110 x 1.05 = $115.50
Total fee income $1,524,600
Note:
We know that 10% of the market is represented by 11,000 hours. This means that all firms operating in this
particular market charged clients a total of 110,000 hours last year (i.e. X*10% = 11,000; X = 11,000 / 10%). If
Janet’s market share will increase by 2% next year, her chargable hours will increase to 13,200 (i.e. 110,000*12%).
FEES INCOME by TYPE and PERIOD
G: Carol Stewart - Naturopath
It is estimated that Carol will:
1. Work 5 days per week for 8 hours per day and will take 4 weeks holiday per year.
2. Starting work on 1 July.
3. Work for 65 days during the quarter ending 30 September and will be fully occupied (i.e. 65 days x 8 hours per day
= 520 hours).
4. Consult for 80% of the time in her rooms. The remainder of the time will be spent doing home visits. Home visits
will take 1 hour per patient and normal consultations will take 0.5 hours per patient.
5. Charge $60 per home visit and $35 per normal consultation.
Required: Carol wants you to prepare a fees income budget for the first quarter of operations.
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FNSACC503A – Manage Budgets and Forecasts
WEEK 2 – CHAPTER 3 – SALES & REVENUE BUDGETS
Part 1: Workings
Est. sales volume (units) x Est. sales price ($) = Est. total sales ($)
(no. consultations) x (hourly rate) = (total fees income)
NORMAL HOME VISIT TOTAL
CONSULT.
Time allocation 80% 20% 100%
Hours worked 520 hours x 80% = 520 hours x 20% = 65 days x 8 hours =
416 hours 104 hours 520 hours
Consultation length 0.5 hours 1 hour
No. consultations 832 104
(VOLUME)
Charge out rate $35 per hour $60 per hour
(PRICE)
Total fees income $29,120 $6,240 $35,360
Part 2: Work out the number of consultations per month by type using the following split:
July = 23/65 days
August = 22/65 days
September = 20/65 days
SOLUTION: Carol Stewart - Naturopath
Fee income budget for the quarter ended 30 September 2013 (extract)
Normal Consultation (PERIOD)
Month No. consults (Q) Hourly rate (P) Total fees
(PERIOD) income ($)
July 832 x 23/65 = 294 $35 $10,290
August 832 x 22/65 = 282 $35 $9,870
September 832 x 20/65 = 256 $35 $8,960
Total 832 $35 $29,120
HYBRID : Distributor / Professional service provider
e.g. Vet (they provide a vet service to your pet and they sell pet-related products in-store)
(refer to instructor notes)
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