Professional Documents
Culture Documents
Classifications
SUBMITTED BY:-
KUNDAN GANVIR
What is a Budget?
Long term
Sales Budget Fixed Budget
budget
Cost of Production
Budget
R&D Budget
Cash Budget
Master
Budget
Classification of Budget according to Time
Short Term Budget Long Term Budget
May cover periods of three to twelve A systematic and formalized process
months depending upon nature of for directing & controlling operations
business for period extending beyond one year
Should be long enough to allow It evaluates future implications
completion of a season or all aspects associated with present decisions
of a business
Market trends, change in
The period should coincide with demographics, national income, etc.
financial accounting period to play important role in preparing long
facilitate evaluation of performance term budget
e.g. A budget allocated to It proves useful in forecasting and
manufacturing of lots for spring- evaluation of an organization over
summer season, Fashion Retailing, etc. period of time
e.g. A father planning money
requirement for his childs future
Examples on short term and long term
budget
Short Term budget:
A student allocating his/her pocket money to his monthly expenses
like food, clothing, rent, leisure activities, stationaries, etc.
Long Term budget:
A father planning future of his children:
College expenses
Child 1 (current age 8); $20,000/year beginning in 10 years
Child 2 (current age 3); $24,000/year beginning in 15 years
New car purchase - $30,000 in two years ($4,000 upfront +
$400/month for seven years)
Classification of Budget according to Function
Sales Budget
The most important budget, all other budgets are contingent upon
Production budget, selling and distribution, etc. are affected by sales
budget
Quarter 1 Quarter 2 Quarter 3 Quarter 4 Yearly
E.g.
Sales units 120 130 150 165 565
Price per unit 20 22 25 27
Total Sales 2400 2860 3750 4455 13465
Sales forecasting:
Developing a sales budget requires forecasting future sales, which depends upon three
main factors:
1. Information concerning past performance
2. Information about present conditions within industry and sales territory and
3. Data concerning the industry and general business conditions
Classification of Budget according to Function
Production Budget
It is stated in physical units
It specifies the number of units of each product that must be
produced to satisfy the sales forecast
The number of units to be produced can be formulated using:
E.g.
Budgeted sales = 70,000,
Desired closing finished goods inventory = 20,000
Beginning finished goods inventory = 40,000
Units to be produced = (70,000 + 20,000 40,000) = 50,000
Classification of Budget according to Function
Production Cost Budget
It summarizes the materials budget, labor budget and the factory
overhead budget
It is made up of three budgets:
Materials
Labor
Factory overhead
Direct Materials budget:
It specifies the cost of direct materials used and cost of the direct materials
purchased.
It helps in developing purchasing and delivery schedule
Helps to meet production targets
Direct Labor Budget:
It estimates the labor, in number and grades, to enable production budget
to be achieved
It must disclose: grade of labor along with cost (wages) and period of
training
Factory Overhead Budget:
Prepared on basis of chart of accounts which reflects different expense
accounts and details of cost center or departments
Example on Production Cost budget
Material Usage
Product A Product B Total
budget
Budgeted
50,000 80,000
production
Direct materials
requirements
Product A X 5
Product B X 8
Direct materials
2,50,000 4,80,000
usage (kg)
Cost per kg Rs. 1 Rs. 1.50
Cost of Direct
Rs. 2,50,000 Rs. 7,20,000 Rs. 9,70,000
materials used
Classification of Budget according to Function
Research and Development Budget