Budget is an estimate prepared for definite future period either in terms of financial or non financial terms.

2. BUDGET
 Budget is an estimate prepared for definite future period either in terms
of financial or non financial terms. Budget is prepared for any course of
action or business or state or Nation, as a whole. The budget is usually
expressed in terms of total volume.
 According to ICMA, England, a budget is as follows "a financial and or
quantitative statements prepared and approved prior to a defined period
of time, of the policy to be pursed during the period for the purpose of
attaining a given objective

3. FORECAST VS BUDGETS
 Forecasts are concerned with
expected events
 Forecasting is done for a long
duration
 Results of forecasting is plaing
 Forecasting does not act as a tool
of measurement
 Budgets are concerned with
planed events
 Budgets are for a shorter or
specific duration
 Result of planning is budgeting
 Budgets are the targets against
which actual are compared.

4. TYPES OF BUDGET

5. CLASSIFICATION ACCORDING TO TIME
1. Long-Term Budget:
Long-term budgets are prepared for a period exceeding one year. They are
only forward looking plans. They act as a guidelines for preparing short
term budgets.
2. Short-Term Budget:
A budget prepared for a period less than a year is called short-term budget.
Short term budgets are prepared for actual implementation and it has a
practical value.
3.Current Budget:
A budget prepared for a short time is called a current budget. It is meant for
actual implementation. Conditions prevailing at the present are the basis for
preparing these budgets.

6. CLASSIFICATION BASED ON FLEXIBILITY
1. Fixed Budget - According to CIMA, London – “A fixed budget is a
budget designed to remain unchanged irrespective of the level of
activity actually attained.”
Thus, a budget which is prepared on the basis of standard or fixed level
of activity is known as fixed budget.
2. Flexible Budget - According to CIMA, London- “A flexible budget is
a budget designed to change with the level of activity actually
attained.”
E.g. – Budget was prepared for 60% production capacity but in actual
50% or 70% production capacity was used.

8. ON THE BASIS OF FUNCTIONS
Functional Budgets:
Functional budgets are the budgets prepared for various activities of a
firm.
Sales Budget:
The sales budget is a statement of planned sales in quantity and value
both. In sales budget, sale is forecasted during the budget period. The
sales manager is responsible for preparation of this budget.
Purchase Budget:
This budget is prepared for every purchase item to be purchased in each
department. The purchase manager is entrusted with the responsibility of
making this budget. This budget enables the purchase department to
make bulk purchases.

9. Production Budget:
The production budget is prepared for making a plan of production e.g.,
quantity of production, cost of production, type of products, plant capacity,
operating cycle, availability of inputs, make or buy policy etc., during the
budgeted period.
Cash Budget:
Cash Budget forecasts both the inflow and outflow of cash during the
Budget Period
Three important methods are available for preparing the Cash Budgets.
They are:
i. Receipts and Payments Method -
ii. Adjusted Profit and Loss Account Method, and
iii. Balance Sheet Method.

10.  OVERHEAD BUDGET
i. Production Overhead Expenses Budget – It shows the amount of
production overhead expenses expected to be incurred to produce the
budget output.
ii. Administrative Overhead Expenses Budget – It shows the probable
expenses pertaining to top managerial and supervisory functions.
iii. Selling and Distribution Overhead Expenses Budget – It presents the
information in detail about the probable expenditure to be incurred to
promote the sale of goods and services, and for distribution.

11. iv. Research and Development Cost Budget – This Budget presents the
details about the limits within which the research and development
activities are to be carried out during the Budget Period.
v. Capital Expenditure Budget – It shows the details about the future
capital expenditure programme which the company intends to undertake
in future. Further, it presents information about the probable capital to
be employed on the projects during the Budget Period. This Budget is
normally prepared for a long period

12. Budgetary Control
Budgetary control contains two
different processes one is the
preparation of the budget and another
one is the control of the prepared budget.
 According to ICMA, England, a budgetary control is " the establishment of
budgets relating to the responsibilities of executives to the requirements of a
policy and the continuous comparison of actual with budgeted results, either to
secure by individual action the objectives of that policy or to provide a basis
for its revision".

13. OBJECTIVES OF BUDGETARY CONTROL
 Planning – ensures effective planning by setting up of budgets
 Coordination- helpful in coordination of business activities
 Efficiency and Economy- effective budgetary control results in cost
control & cost reduction
 Increase in profitability – budgets helps to control cost in turn profit
increases
 Anticipation of future capital expenditure

14. ADVANTAGES OF BUDGETARY CONTROL
 Maximization of profits
– achieved through planning, coordination ad control of various
activities
 Evaluation of Executive performance
– through actual performance is compared with standards and
deviation are reported
 Economy in operations
– expenses are properly planned & utilized
 Shutting down of unprofitable products ad activities

15. LIMITATIONS OF BUDGETARY CONTROL
 Prediction of uncertain future
 Difficulty in coordination among various
departments
 Changes of conditions frequently may
frustrate the employees.

16. BUDGETARY CONTROL VS STANDARD COSTING
 Time frame
Standards have no time frame. They caused over a long period
budgets are for specific time periods beyond which they have no
relevance. New budgets may be prepared thereafter
 Interdependence
Standard costing is based on budgets during any specified period.
production, sales etc are take from budgeted figures to implement
standards
Budgetary control can be carried on without standards. It is not
dependent on standard costing

17.  Basis for preparation
Standards are based on technical assessments.
Budgets are usually the past actual figures adjusted for future changes
 Approach
Standards are more intensive and concentrate on each element of cost,
operation, etc
Budgets are extensive and are set for departments, functions, etc.
 Scope
Standards are mainly for costs. Revenue is not the focus of standard
costing
Both income and expenditure form part of budgetary control.

18.  Criterion
Standards are the goals or targets to be attained. Actual costs are expected to
conform to the standards. They must be aimed at and attained.
Budgets set the maximum limits for expenses which are not expected to be
exceeded.
 Origin
Standard are purely ‘cost oriented’. Standard costing is a projection of cost
accounts expenditure.
Budgets are projections of financial accounts. Overall business efficiency
both in the areas of income and is the goal of budgetary control.

19.  Nature of costs used
Standard costs are the norms or what cost should be under specified
circumstances.
Budgets are estimated costs. They are what the costs will be.
 Uses for forecasting
Forecasting standard costs cannot be used for forecasting material required
etc..because they are like goals and or what the costs will be.
Budgeted figures can be used for because they are the expected costs and
revenues.