The sales forecast is usually the first forecast to be prepared in the budgeting process. After the sales level has been determined, the production budget and the other operating budgets can be prepared. Only after all of these other budgets are done can a budgeted income statement be prepared and profits estimated.
The capital budget is the budget in which all capital (property, plant and equipment) expenditures are planned. The capital expenditures budget is often prepared years in advance so that the company is able to obtain the necessary financing or accumulate the necessary cash to carry out its capital expansion plans. This budget is related to many of the current period operating budgets because they are affected by the capital projects planned for the budget year. However, it is not the foundation for the whole profit plan for the coming year.
The production plan can not be calculated until the sales volume is forecast.
Cost and expense budgets can not be calculated until the sales volume is forecast.
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