This article throws light upon the ten main types of budget used in an organisation. The types are: 1. Sales Budget 2. Cash Budget 3. Production Budget 4. Materials Budget 5. Labor Budget 6. Factory Overhead Budget 7. Distribution Overhead Budget 8. Administrative Overhead Budget 9. Master Budget 10. Fixed and Flexible Budget.
Type # 1. Sales Budget:
It includes a forecast of total sales during a period expressed in money and/or quantities in the organisation. The forecast relates to the total volume of sales and also its break-up product-wise and area-wise in the organisation. The responsibilities for making sales budget lies with the sales manager in the organisation.
Preparation of sales budget is the important factor in any business enterprise. Ali other budget are based on the sales budget in the organisation. Sales budget sets tone for production, finance and personnel budgets in the organisation.
The following factors are relevant for preparing the sales budget:
1. Past sales figures and trend,
2. Salesman’s estimates,
3. General economic conditions,
4. Orders on hand,
5. Seasonal fluctuations,
6. Competition, and
7. Government’s control and policy.
Type # 2. Cash Budget:
In the organisation, the cash budget usually gives detailed estimates of (a) cash receipts and (b) cash disbursements for the budget period. In the organisation, it is prepared (i) to ensure that cash is available in time for meeting the financial commitments and (ii) to use cash available in the best possible manner.
Type # 3. Production Budget:
It includes a forecast of the output during a particular period analyzed according to (a) products, (b) manufacturing departments, to schedule its production according to sales forecast in the organisation.
Type # 4. Materials Budget:
It generally deals with the direct materials for budgeted output in the organisation. It is based on the production budget. Material requirement for a unit of production is determined and is multiplied by the budgeted output to arrive at total quantity of direct materials required in the organisation.
Materials budget helps in scheduling the purchase of materials to produce a given volume of output during a particular period to meet the requirements of customers during that period in the organisation.
Type # 5. Labor Budget:
It is based upon the estimates of the production budget in the organisation. It reveals the requirements of labor for a given period of time and the financial requirements to meet the wage bills of workers for the specified budget period.
Type # 6. Factory Overhead Budget:
It includes the details of the fixed and variable overhead costs for the budget period. Fixed costs generally remain fixed in the organisation. They do not change with the change in the volume of production. Variable costs on the other hand, change with the changes in the volume of production in the organisation.
Fixed costs can be determined on the basis of past data and likely changes in the future. Variable costs for the specified budget period are determined on the basis of the volume of production included in the production budget.
Type # 7. Distribution Overhead Budget:
It includes the estimates of all items of expenditure on promotion and distribution of finished products in the organisation. The cost are divided into fixed, variable and semi-variable categories and estimated on the basis of past experience in the organisation.
The various items of expenditure in the organization include sales office rent, salaries, depreciation and miscellaneous expenses like advertising, commission, bad debts, travelling expenses etc.
Type # 8. Administrative Overhead Budget:
It includes the estimates of administration expenses like expenses on office operations including salaries of office personnel in the organisation. Such expenses from a significant part of the total cost of a product. Preparation of this budget helps in keeping the administrative costs under control in the organisation.
Type # 9. Master Budget:
The master budget is the summary budget incorporating its component functional budgets, which is finally approved, adopted and employed in the organisation. Thus, master budget incorporate all functional budgets. It projects a comprehensive picture of the proposed activities and anticipated results during the budget period. The top management of the enterprise approves it.
Type # 10. Fixed and Flexible Budget:
A fixed budget, which is designed to remain unchanged irrespective of the level of activity, actually attained. The main purpose of Fixed budgeting in the organization is to coordinate sectional activities to attain the enterprise objectives. It is prepared for a given level of production and does not take into account the changes in production in the organisation.
On the other hand, a flexible budget is prepared in a manner it gives the budgeted cost for any level of activity in the organisation. Thus, it facilitates comparison of actual performance with budget at different volumes of activity. Such a budget is prepared after considering the fixed and variable elements of cost and the changes that may be expected for each items at various levels of activity.