My previous post explained how to prepare the Sales Budgeting Spreadsheet. Following that, the next step is to prepare the Purchase Budgeting Spreadsheet or some organizations termed it as Cost of Sales or Direct Expenses Budgeting Spreadsheet. All these three terms are actually referring to direct cost attributable to the good sold or sales.

For illustration purpose, let assume that the cost of purchases were constant 30% of sales volume over the last three years. It also is assumed that there will not be any change of trend in the cost of purchases for the next five years. By applying these assumption of 30% on the sales volumes for the next five years, we get the cost of purchases equivalent as shown in the below table:

financial-budget-ppt-91

Upon applying the cost of purchases to the sales volume, you will get the Gross Profit Margin. The Gross Profit Margin is equal to Sales Volume less Cost of Purchases which is actually what remaining from sales after the company paid the cost of purchases.

To be continued in next post…………..[ad#ad-3]