This document defines budgets and budgetary control. It explains that a budget is a financial plan for a future period, showing expected income, expenses, and capital. Budgetary control uses comprehensive budgeting to aid management in planning, coordination, and control. It involves dividing the organization into budget centers, preparing budgets for each, consolidating them, comparing actuals to budgets, and reporting variances for future action. The document also classifies budgets by time, function, and flexibility, and provides details on various types of budgets such as sales, production, cost of production, purchase, personnel, R&D, capital expenditure, cash, master, fixed, flexible, and zero-base budgets. It concludes that preparation, implementation,

1. R.KRISHNARAJ
Roll No 24
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2. WHAT IS A BUDGET?
“ A plan expressed in money. It is
prepared and approved prior to the
budget period 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.”
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3. WHAT IS BUDGETARY CONTROL?
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Budgetary control is the use of the comprehensive system of budgeting
to aid management in carrying out its functions like planning,
coordination and control.
This system involves:
Division of organization on functional basis into different
sections known as a budget centre.
 Preparation of separate budgets for each “budget centre”.
Consolidation of all functional budgets to present overall
organizational objectives during the forthcoming budget period.
 Comparison of actual level of performance againstbudgets.
Reporting the variances with proper analysis to provide basis for
future course of action.

4. CLASSIFICATION OF BUDGETS
budget
ACCORDING TO
TIME
ACCORDING TO
FUNCTION
ACCORDING TO
FLEXIBILITY
8. Long term budget 1. Sales budget 1. Fixed budget
9. Short term budget 2. Production budget 2. Flexible
10. Current budget 3. Cost of Production budget
11. Rolling budget 4. Purchase budget
5. Personnel budget
6. R & D budget
7. Capital Expenditure budget
8. Cash budget
9. Master budget
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5. 1. SALES BUDGET:
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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.
2. PRODUCTION BUDGET:
Production budget involves planning the level of production which
in turn involves the answer to the following questions:
a. What is to be produced?
b. When is it to be produced?
c. How is it to be produced?
d. Where is it to be produced?

6. 3. COST OF PRODUCTION BUDGET:
This budget is an estimate of cost of output planned for a
budget period and may be classified into –
• Material Cost Budget
• Labour Cost Budget
• Overhead Cost Budget
4. PURCHASE BUDGET:
This budget provides information about the materials to be
acquired from the market during the budget period.
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7. 5. PERSONNEL BUDGET:
This budget gives an estimate of the requirements of
direct labour essential to meet the production target
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This budget may be classified into –
a. Labour requirement budget
6. RESEARCH AND DEVELOPMENT BUDGET:
This budget provides an estimate of expenditure to be
incurred on R & D during the budget period.
A R&D budget is prepared taking into consideration the
research projects in hand and new R & D projects to be
taken up.

8. 7. CAPITAL EXPENDITURE BUDGET:
This is an important budget providing for acquisition of
assets necessitated by the following factors:
a. Replacement of existing assets.
b. Purchase of additional assets to meet increased production
c. Installation of improved type of machinery to
reduce costs.
8. CASH BUDGET:
This budget gives an estimate of the anticipated receipts and
payments of cash during the budget period.
Cash budget makes the provision for minimum cash
balance to be maintained at all times.
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9. 9. MASTER BUDGET:
CIMA defines this budget as “ The summary budget incorporating
its component functional budget and which is finally approved,
adopted and employed”.
Thus master budget is a summary of all functional budgets in
capsule form available in one report.
10. FIXED BUDGET:
This is defined as a budget which 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.
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10. 11. FLEXIBLE BUDGET:
CIMA defines this budget as one “ which, by recognising the
difference in behaviour 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”.
12. 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 the performance of that standard.
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11. 13. ZERO BASE BUDGETING:
The zero base budgeting is not based on the incremental
approach and previous figures are not adopted as the base.
Zero is taken as the base and a budget is developed on the
basis of likely activities for the future period.
A unique feature of ZBB is that it tries to help management
answer the question, “Suppose we are to start our business
from scratch, on what activities would we spent out money
and to what activities would we give the highestpriority?”
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12. 14. RESPONSIBILITY ACCOUNTING:
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Responsibility accounting fixes responsibility for cost control
purposes by establishing responsibility centres namely –
a. Cost centre
b. Profit centre
c. Investment centre
Principles of responsibility accounting are as follows:
1. Fixation of targets for each responsibility centre
2. Actual performance is compared with the target
3. The variances therein are analyzed so as to
fix the responsibility of centres.
4. Taking corrective action.

13. CONCLUSION:
Ψ Preparation of budgets is the first step in the budgetary control
system.
Ψ Implementation of budgets is the second phase.
Ψ But preparation and implementation of budgets alone
will not achieve much unless a comparison is made
regularly between the actual performance and the budgeted
performance.
Ψ Continuous and proper reporting makes this possible.
Ψ To ensure the success of budgetary control system, proper
follow up action has to be taken immediately for the reports
submitted.
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