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Principal Of Budgeting :

The main components for budget are:


a) Funds
b) Activities / Outcomes
c) Timeframes
A budget can be established by forecasting in advance the processes of the
intended activities and outcomes by:

Assessment of projected income and expenses through the life of the


budget framework.

Comparison with similar budget frameworks.

Assessment of the funds available.

Pre-analysis of requirements.

Analysis of new options and approaches.


On The Basis Of Types Of Budget
Different types of budgets are prepared for different purposes on the basis of
functionality, on the basis of flexibility and on the basis of period, for examples:
Capital Budget
Operational Budget
Sales Budget
Production Budget
Administrative Expense Budgets
Raw-material Budget
Labour budget
Manufacturing overhead budget
Cash Budget
Sales

Budget:
Sales budget is the primary budget
Other budgets are prepared on the basis of sales budget
Forecast the future expected sales of the firm
Based on product, type of customers, salesman, locality
Past sales, sales man estimates, plant capacity, raw material, order in
hand, seasonal fluctuations, competition are taken into consideration.

Production Budget:
Schedule of production is prepared by breaking large production in small
units to fullfill the target production
A properly operated budget leads to inventory control, improved
maintenance of production schedules and production targets
If the estimated opening stock is 5000 units and estimated sales are
25000 units and closing stock of the product is 3000 units the estimated
production will be 25000 + 3000 5000 = 23000 units
Material Budget:
Materials are basically divided into two categories as direct and indirect
material

It includes the preparation of estimates of different types of the raw


material needed for various products and purchasing raw material in
required number at a required time
Requirement of raw material, companys stocking policies, price trend, and
cost of raw material are few factors to be considered

Labour Budget:
Labour requirement budgets are prepared on basis of production budget
In this budget company has to budget the required number of hours and
the expected pay scales of the employees
This budget gives information about personnel specifications for the job
for which workers are to be recruited, the degree of skill and experience
required and rates of pay
Manufacturing Overhead Budgets
This budget gives the work overhead expenses to be incurred in a budget
period to achieve the production target
The cost of indirect material and indirect labour can be calculated with the
help of this budget
Variable expenses are estimated on the basis of the budgeted output
because these expenses are bound to change with the change in output
Administrative Expenses Budget
The budget covers the expenses incurred in framing policies, directing the
organization and controlling the business operations
In this budget an estimate of expenses is prepared regarding central office
and of management salaries
Selling And Distribution Budget
This budget is used to plan for the expected selling and distribution
expenses of the firm
Cost of transportation, salesman salaries
Cash Budget
Predict the inflow and outflow of cash during the budget period
Cash sales, credit collection and other receipts in cash payments are
considered
A cash budget makes provision for a minimum cash balance which will be
available at all times
Master Budget
The master budget is the aggregation of all lower-level budgets produced
by a companys various functional areas, and also includes budgeted
financial statements, a cash forecast, and a financing plan

On The Basis Of Flexibility


Fixed Budget
This is the rigid budget and it is drawn on the assumption that there will
be no change in the budgeted time period
A fixed budget will be helpful only when actual level of activity is equal to
budgeted level of activities
Flexibile Budget
It is also called as variable budget
A flexible budget gives different budgeted costs for different levels of
activities
This budget is applicable in where activity levels vary from period to
period
The business is new and it is difficult to predict, industry is influenced by
change in fashion, when there are changes in sales
On The Basis Of Time Period
Long Term Budget
Long term budgets are prepared for those organizations, which deal in
regular product line
Here organizations are not suppose to change their proceedings in short
time periods
Short Term Budget
Short term budgets are prepared for short time periods which work for
seasonal product line
All these sectional budgets are afterwards integrated into a master budget which
represents an overall plan of the organisation.

Typical Examples Of A Building Project:


A typical of components of construction project budget may include:

The construction cost.

Land or property acquisition.

Approvals fees.

Planning cost.

Financing costs.

Site investigations.

Fixtures, fittings and equipment.

The cost of decanting and relocating, including costs associated with


moving staff.

Contracts outside of the main works.

Insurance.

Consultant fees.

Inflation.
Contingency.

References

Thomsett, Micheal C. (1988). The Little Black Book Of Budgets And Forecasts,
USA:
American Management Association.
Subbrayan, Radhakrishnan (2006). Corporate Budgeting Understanding The
Budgeting Process With Financial Forecasting And Free Cash Flow Calculation.
Kuala Lumpur: Golden Books Centre Sdn Bhd.
Adnan H, Nawawi AH, Ismail F, Shariff S. (2012). Holistic Construction Project
Management-Book 1. Shah Alam, KL: Penerbit Press Universiti Teknologi MARA.

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