Final answer:
A sales forecast by product is the first logical step in the development of an annual operating plan, as it underlies all other planning aspects such as production, labor, and financial planning.
Step-by-step explanation:
A sales forecast by product is the most logical first step in developing an annual operating plan. The sales forecast serves as the foundation upon which all other elements of the operating plan are built, as it directly informs decisions about production schedules, cash flow management, and capital requirements. Without an accurate sales forecast, a company cannot effectively plan for production, labor, or the financial aspects of its operation.
A sales forecast enables a business to answer critical questions such as what products the firm should produce, how much output should the firm produce, and what price should the firm charge for its products. These decisions then influence the amount of labor the business will need to employ and the best production processes to implement in order to meet customer demand efficiently.
Considering that forecasting sales is a predictive exercise, it is important for a company to use historical data, market analysis, and industry trends to make as accurate a forecast as possible. This foundational step is essential for aligning all subsequent planning and operational activities, making it the clear starting point for an annual operating plan.