Page 571 - Sensors and Control Systems in Manufacturing

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Ele v e n
Cha p te r

line with an overall plan. It charts the course a top manager should
take in carrying responsibility for many different functions.
If the business grows to the point where selling, producing, and
perhaps financing responsibilities are delegated to different persons,
a more specific and formal plan becomes important. The budget must
still direct the decisions of the owner-manager and key executive of
the firm, but it must also coordinate the actions of the different mem-
bers of the group.

11.1.1 Developing a Plan
A manufacturer’s budgeting procedure must be simple. It must be
focused on a limited number of functions that are important to the spe-
cial circumstances. All individuals who are to have any responsibility
for seeing that it works should take part in planning it. The overall
budget for most manufacturers should include the following parts:

• Sales budget
• Production budget
• Selling and administrative budget
• Capital budget
• Financial budget

The first four of these budgets taken together provide a basis for
projecting profits, since the sales budget provides an estimate of rev-
enues and the other three of costs. The financial budget provides a
plan for financing the first four plans. Each of the five budgets should
be made in advance for periods of six months or a year.

11.1.2 Sales Budget
The accuracy of any budget or plan for profitable activity depends
first on the accuracy of the sales forecast. In many small firms, the
volume of sales may be affected substantially by the condition of a
single new customer or the loss of a single old one. The sales forecast
in these cases must include a good deal of guesswork.
Nevertheless, a forecast should be made. It will usually be based
mostly on past sales figures, but sales tendencies and economic con-
ditions that are likely to increase or decrease sales volume in the com-
ing period should be studied.
A sales forecast or budget that might be suitable for a typical
small plant appears in Table 11.1. Forecasted sales are stated in both
product units and dollars and are broken down by sales territories.

11.1.3 Product Budget
Once the sales forecast has been made, the production budget can be
prepared. Enough units of products 1 and 2 must be produced to