LO 7.2Which of the operating budgets is prepared first?

production budget

sales budget

cash received budget

cash payments budget

sales budget

Explanation:

A budget is an an estimate of income and expenditure for a set period of time. it is called operating budget when we are referring to a company. Because a company needs to know the estimate of sales for each quarter, month, or time period before they can determine how many units to be produced.

It is very important for the sales estimate to be correct so that the company knows how many units to produce. If the estimate is underestimated the inventory would be insufficient for customers, they may go somewhere else to satisfy their needs.

If there is an overestimation it will make the company spend more cash than necessary, leading spoilage or losses.