The Relationships Between Sales Budgets & Production Budgets

by Edriaan Koening, studioD

A business prepares various budgets to plan for its future operations. Such budgets plan the finances of the entire company and allow the business to coordinate the various facets of its operations. The sales budget and the production budget both contribute significantly in the preparation of the business's master budget.


A business's master budget consists of several smaller budgets, which have to be prepared in the correct sequence to make sense. The business starts with a sales budget, which provides the data required to prepare the production budget and the selling, general and administrative budget. The data from the production budget goes into the preparation of the materials budget, labor budget and factory overhead budget. The company's accountants can then use all these budgets to estimate the impact of the company's operations on its future financial statements.


The sales budget begins by predicting the sales volume of the company over a future period of time. The company may arrive at this estimated figure by analyzing its sales history, its competitors and the economic conditions. The sales budget then calculates the amount of income it will earn from sales activities over the coming time period. The production budget uses the data from the sales budget to calculate the number of products the company has to produce over the period of time.

Common Item

The sales budget and the production budget share a common item: the number of products sold. While the sales budget uses this figure to estimate its future income, the production budget uses it to determine its production operations. The production budget begins with the number of items the company expects to sell over a future period of time. It then takes into account the number of items the company already has in stock to calculate the number to produce.


The sales budget and the production budget involve simple calculations. For example, the company expects to sell 10,000 units of products over the next year. The sales budget then multiplies the number of units by the price of one unit. For example, if a unit sells for $100, the company will receive $1 million in revenue over the next year. If the company already has 1,000 units in stock and expects to have 700 units in stock by the end of the year, the production budget deducts 1,000 from 10,000 and adds 700 to the resulting figure to get 9,700. This is the number of units the company has to produce for next year.

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