Budget Example – Sales, Incremental, Production and More

The budget is a statement that includes estimates of income and expenses for a future period. Or, we can also say it is a tool that management uses to estimate its revenue and overheads for the next financial year in line with the company’s objectives. In this article, we will discuss the budget example to get an idea of the types of budgets and how they work.

Types of Budget

Based on duration, there are two types of the budget – a short-term budget and a long-term budget. We can then further classify short and long term budgets into a specific project, department-wise budget, company-specific budget, process budget, and more.

Short-term Budget

Such a budget usually covers one year or less. In this, the company prepares the estimate at the start. At the end of the period, it evaluates the results to see if there is any variance or not.

Long-term Budget

Such budgets usually cover more than a year. They are so generally because it gets challenging to estimate for future years. Thus, such budgets focus on significant investments and broad company goals.

We can further divide short and long term budgets into an activity-specific budget. For instance, a sales budget tracks the sales growth, and the cash budget tracks the inflow and outflow of cash. In the real-world, most budgets are short-term budgets, i.e., covering less than a year. In this article, we will include examples of short-term budgets.

Budget Example

Following are some of the most used budgets:

Sales Budget

Let’s take a sales budget example to understand it better.

Suppose Company A sells mobiles. For the next four quarters, it expects to sell 500, 600, 700, and 800 units, respectively. The selling price for the first two quarters will be as given in the example. Also, for all four quarters, Company A expects to provide a sales discount of 2% on the selling price.

ParticularsQuarter 1Quarter 2Quarter 3Quarter 4
     
Sales (units)500600700800
Sales (selling price)$200$190$180$150
Gross Sales$100,000$114000$126,000$120,000
     
Sales Discount 2%$2,000$2,280$2,520$2,400
     
Total Net Sales$98,000 $111,720 $102,480 $117,600

The above figure shows the net sales that Company A expects to make in the next four quarters.

Incremental Budget

This budget helps to get an estimate of expenses and income on the additional items to be produced, sold, or additional expenses to be incurred. We can use incremental budgets for almost anything, such as sales, salaries, costs, and more. Let us consider an incremental budget example to understand it better.

The total salary bill for Company A for the year 2019 was $50,000. Company A now wants to prepare a salary budget for the year 2020. The company expects to add five new employees next year at a salary of $5000 per year each. Also, the company plans to give an increment of 10% to all its present employees.

Particulars Amount
  
Salary 2019$50,000
Increment of 10%$5,000
Total Salary after Increment$55,000
  
New Employees (5 @ $5,000)$25,000
  
Total Salary for 2020$80,000

Budget Example

Production Budget

This budget helps a company to estimate its production costs and units. Let us consider a production budget example to understand it better.

Company A expects to sell 1000, 1250, 1300, and 1400 units of mobiles in the next four quarters. The production manager plans to have 250, 220, 170, 280 units of inventory at the end of each quarter. The opening Inventory for the first quarter is 300 units. In this case, the production budget will let the company know the number of mobiles it needs to produce to meet the target.

ParticularsQuarter 1Quarter 2Quarter 3Quarter 4
     
Sales (units)1000125013001400
Ending Inventory expected250220170280
     
Total Units Required (A)1,2501,4701,4701,680
     
Opening Inventory (B)300250220170
     
Units Needed to Produce (A-B)9501,2201,2501,510

Business Budget

It is the budget for the entire company. And it helps the company to estimate the profit or loss for the next year. Let us consider a simple business budget example to understand it better.

Company A sells mobiles and expects its sales and all expenses to rise by 10% next year.

Particular Actual 2019Budget 2020
   
Sales$50,000$55,000
COGS$30,000$33,000
   
Gross Profit$20,000$22,000
   
Rent$500$550
Salary$2,100$2,310
Insurance$300$330
Electricity$400$440
Travel$250$275
Office Supplies$100$110
Other$50$55
   
Net Profit $16,300$17,930

The above figure shows the net profit and gross profit that a company can expect next year based on a 10% overall increase.

Final Words

The above budget examples are just a few popular ones. In reality, there could be several types of budgets that are much more complex. But, the objective of the above examples is to give an idea on how to draw and read budgets.

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Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

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