TYPES OF BUDGETS
BY:
ABHISHEK DUBEY
INTRODUCTION
For effective running of a business, management must
know:
1. Where it intends to go i.e. organizational objectives.
2. How it intends to accomplish its objectives i.e plans.
3. Whether individual plans fit in the overall
organizational objective. i.e. coordination
4. Whether operations conform to the plan of operations
relating to that period i.e. control
“budgetary control is a device which the
organization uses for all these purposes.”
What is a BUDGET?
“ a plan expresses in money. It is prepared and
approved prior to the budget and may show
income, expenditure and the capital to be
employed. May be drawn up showing
incremental effects on former budgeted or
actual figures, or be compiled by zero-based
budgeting.”
Classification
of budgets
According to
time
According to
function
According to
flexibilty
•
•
•
•
According to time
According to fuction
Long term budgets
Short term budgets
Current budgets
Rolling budgets
• Sales budget
• Production budget
• Cost of production
budget
• Purchase budget
• Personnel budget
• R & D budget
• Capital
expenditure budget
• Cash budget
• Master budget
According to
flexibility
• Fixed budgets
• Flexible budgets
• Sales budget:
sales budget is the most important budget based on
which all the other budgets are built up. This budget
is a forecast of quantities and values of sales to be
achieved in a budget period.
• Production budget:
it involves planning level of production which in
turn involves to the answers to:
what is to be produced?
When is it to be produced?
How is it to be produced?
Where is it to be produced?
• Cost of production budget
this budget is an estimate of cost of output planned
for a budget period and may be classified intomaterial cost budget
labour cost budget
overhead cost budget
• Purchase budget:
this budget provides information about the
materials to be acquired from the marketing during
the budget period.
• Personnel budget:
this budget gives an estimate of the requirements of
labour essentials to meet the production target.
This may be classified intolabour requirement budget
labour recruitment budget
• Research and development budget:
this budget provides an estimate of expenditure to
be incurred on r and d during the period.
• Capital expenditure budget:
this is an important budget providing for acquisition
of assets due to:
replacement of existing assets
purchase of additional assets to meet increased
production
installation of improved type of machinery to reduce
costs.
• Cash budget:
it gives an anticipated receipts and payments of cash
during the budget period.
• Master budget:
this summary budget is incorporating its
component functional budget and which is finally
approved, adopted and employed.
• Fixed budget:
this budget is designed to remain unchanged
irrespective of the volume of output or turnover
attained.
This budget will therefore be useful only when the
actual level of activity corresponds to the budgeted
level of activity.
• Flexible budget:
it is a budget which, by recognizing the difference in
behavior between fixed and variable costs in relation
to fluctuations in output, turnover or other variable
factors such as number of employees, is designed to
change appropriately with such fluctuations.
• Performance budgeting:
these days budgets are established in such a way so
that each item of expenditure is related to specific
responsibility centre and is closely linked with
performance of that standard.
• Zero based budgeting:
the zero based budgeting is not based on the
incremental approach and previous figures are
not adopted as the base.
Zero is taken as the based and a budget is
developed on the basis of likely activities for the
future period.
THANK YOU FOR BEING PATIENT