Question

Is there anything that could be wrong with the planning assumptions used to create the sales budget? Discuss the weaknesses of each assumption and what you would do to improve those weaknesses.

Answer 1

Weakness in making sales budget:

sometimes the data can be inaccurate, unreasonable and that can quickly make your sales bugdet unrealistic

it can lead to inflexibility in decision making

budgets cant be rigid, it needs to be changed as circumstances change. Eg: COVID 19 scenario wont be thought of in past and now your budgets should change accordingly.

sales budget if sets unrealistic targets then demotivates the team and if targets are too low, then it will create a slack

if budget is made only for 1 year it can help in only 1 year that is short term decision making and not beyond that

what would we do to improve these weaknesses?

Keen attention, experienced employee who knows the business in and out should be appointed to make the budget

Decision making should not be solely based on budgets, other factors are to be considered

figures are be changed as the circumstances changes in the business

a lot of productive time is to be invested in making proper budget

a forecasted long duration budgets are to be made if required