Answer (B) is correct . The sales budget is the first to be prepared because all other elements of a comprehensive budget depend on projected sales. For example, the production budget is based on an estimate of unit sales and desired inventory levels. Thus, sales volume affects purchasing levels, operating expenses, and cash flow.
Answer (A) is incorrect because The amount of advertising cost depends on the desired level of sales.
Answer (C) is incorrect because Expenditures for productive capacity are a function of long-term estimates of demand for the firm’s products.
Answer (D) is incorrect because Preparation of a pro forma income statement is one of the final steps in the budgetary process. It cannot be prepared until after all sales, production, and expense budgets are finished.
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