Basic rules to observe
The sales budget – what products at what prices plans the company to sell – is, as pointed out earlier, the starting point for preparing a budget. Three basic rules have to be observed when preparing the sales budget.
The preparation of the budget should always start with the compilation of the sales budget. The sales budget provides for information as to the quantities of product which the company realistically expects to sell and the prices which it expects to achieve.
Budgeting, as already pointed out earlier, always starts with the preparation of the sales budget., because the sales ultimately are the principal limiting factor determining the overall activity level.
Putting together the budget for a company means to create a simulation of the
business activities, which the company plans to undertake during the period for which the budget is prepared, i.e. generally one year;
The complexity of budgeting for overheads (i.e. indirect costs) stems from the fact that overhead costs are not connected directly to individual products, orders or services as are direct costs.
The methodology presented in the following summarises solutions which have been developed in several Ukrainian companies faced with problems of indirect cost planning, allocation of indirect cost to the productive activities and product pricing.
