TYPES OF BUDGETS BY ABHISHEK DUBEY INTRODUCTION For

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.

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