Types Of Budgets Discussed
“Budgets are classified according to their nature and purpose. One can categorize budget into seven broad categories. ”
Budgets are classified according to their nature and purpose. One can categorize budget into seven broad categories. 1st is the sales budget. A sales budget is an estimate of expected sales during a budget period. A sales budget is known as the nerve center or backbone of an enterprise. A sales budget lays down potential sales figure in values as well as in quantity. It lays down a comprehensive plan and programme for sales department. The sales manager is responsible for preparing sales budget.2nd category is of Selling and Distribution Cost Budget. This budget forecasts the cost of Selling and Distribution of the products. This budget depends upon the sales budget. These expenses vary with the expected sales figures during the period. These expenses may be estimates per units of sales or some percentage on sales etc. the persons in charge on Selling and Distribution should sit together to prepare this budget.
Another category is Production Budget. The Production Budget is prepared in relation to the sales budget. Whatever is to be sold should be produced in time so that it is delivered to the consumer. It is a forecast of the production for the budget period. Production Budget is prepared for the number of units to be produced and also for the cost to be incurred on material, labor, and factory overheads.
4th category is Material Budget. It is concerned with determining the quantity of raw material required for production. The programme for purchasing raw material is adjusted according to the production budget. The material is purchased as per the requirement of the production department. The rate of consumption is also determined. The number of units to be produced multiplied by the rate of consumption and the stocks of material in hand are added in the Material Budget.
5th category is Direct Labor Budget. The labor required for the production may be classified into direct or indirect labor. The labor required for the manufacturing is known as direct labor. The labor, which cannot be specific with production, is indirect labor. Two separate budges can be formed for direct or indirect labor but for costing point of view only direct labor budget is prepared.
6th and most common budget is Cash Budget. A cash budget is an estimate of cash receipts and disbursements during a future period of time. It precedes various other budgets like material budget, labor budget, cost budget capital expenditure budget and research budget.
Author - DeeKay
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