- A sales budget is
a. derived from the production budget.
b. management’s best estimate of sales revenue for the year.
c. not the starting point for the master budget.
d. prepared only for credit sales.
- The formula for calculating the direct labour cost budget is to multiply the direct labour cost per hour by the
a. total required direct labour hours.
b. physical units to be produced.
c. equivalent units to be produced.
d. No correct answer is given.
The Correct Answer and Explanation is :
- The correct answer is:
b. management’s best estimate of sales revenue for the year.
Explanation:
A sales budget is a detailed forecast of the expected sales revenue for a specific period (usually one year). It is one of the first steps in creating a master budget and is essential for the financial planning of a business. This budget is based on management’s best estimate of the expected sales, considering factors such as market demand, economic conditions, historical sales data, and the company’s marketing efforts. The sales budget directly influences many other aspects of the master budget, including production, inventory, and cash flow, as it provides the foundation for projecting future revenue.
Unlike the production budget (which focuses on estimating the number of units to be produced based on expected sales), the sales budget does not rely on production figures. It’s a revenue estimate used to determine how much the company expects to earn over a given period.
Sales budgets can be prepared for both cash and credit sales. However, it is a comprehensive estimate, not limited to just one type of sale (credit or cash).
- The correct answer is:
a. total required direct labour hours.
Explanation:
The direct labour cost budget is prepared by calculating the total cost of direct labor required for production activities. The formula for this budget involves multiplying the direct labor cost per hour by the total number of labor hours needed to complete production.
The key to this budget is understanding that labor costs are typically calculated based on the amount of time workers spend on the production process. For instance, if a company plans to produce a certain number of units, it must estimate how many labor hours are necessary for each unit and then multiply that by the direct labor rate (cost per hour).
This approach helps ensure that a company allocates enough resources to cover labor costs for the expected production level. While it’s possible to calculate this budget based on physical units to be produced, it’s more accurate to directly account for labor hours because it accounts for variations in the labor required for different production processes.