2. Budget
BUDGET – refers to the fund allotted for
the operation or certain projects.
A plan expressed in money. It is prepared
prior to the budget period and may show
income, expenditure and the capital to
be employed.
3. TYPES OF BUDGET
1. Sales budget
2. Production budget
3. Cost of Production budget
4. Purchase budget
5. Personnel budget
6. R & D budget
7. Capital Expenditure budget
8. Cash budget
9. Master budget
10. Fixed budget
11. Flexible
4. 1. SALES BUDGET:
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.
5. 2. PRODUCTION BUDGET:
Production budget involves planning the
level of production which in turn
involves
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
7. 4. PURCHASE BUDGET:
This budget provides information about
the materials to be acquired from the market
during the budget period.
8. 5. PERSONNEL BUDGET:
This budget gives an estimate of the
requirements of direct labor essential to
meet the production target.
This budget may be classified into –
a. Labor requirement budget
b. Labor recruitment budget
9. 6. RESEARCH AND DEVELOPMENT
BUDGET:
This budget provides an estimate of
expenditure to be invest 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.
10. 7. CAPITAL EXPENDITURE BUDGET:
This is an important budget providing for the
following factors:
a. Replacement of existing things.
b. Purchase of additional useful things to meet
increased production
c. Installation of improved type of machinery to
reduce costs.
11. 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.
12. 9 . MASTER BUDGET:
It is the 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 single form
available in one report.
13. 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.
14. 11. FLEXIBLE BUDGET:
This budget is defined as one “
which, by recognizing the difference
between fixed and variable costs in
relation to fluctuations in output,
turnover or other variable factors .
15. BENEFITS OF BUDGETING
1. A budget is a way of being intentional about
the way you spend and save your money.
2. It controls the money .
3. Budgeting saves adjust to lack of funds
because you did not initially plan how to spend
them.
16. COST CONTROL
Cost control is the practice of identifying
and reducing business expenses to
increase profits.
Regulate / control the operating costs
17. Essentials of a cost control
1. Establishment of budgets for each
function.
2. Continuous comparison of the actual
performance with budget to know the
variations .
3. Taking suitable action to achieve the
desires objective if there is a
variation in actual performance from
the budgeted performance.
4. Revision of budgets .
18. Objectives of Cost Control
1.Planning:
A budget provides a detailed plan
of action for a business over a definite
period of time.
Detailed plans relating to production,
sales, raw materials, labor needs,
advertising and sales promotion
performance, research and
development activities etc.
19. 2. Communication:
The next step is to communicate the
plan to those, whose responsibility is to
implement the plan.
It also gives understanding about the
restrictions to be followed.
3. Motivation:
It is the process that initiates , guides and
maintain goals.
20. 4. Control
Control is necessary to ensure that
plans and objectives as laid down in the
budgets are being achieved.
For this purpose, a comparison is
made between plans and actual
performance.
21. 5. Performance evaluation
A budget offers a useful means
of telling managers how nicely they
are performing in conference targets
they have formerly helped to set.
In numerous companies there
is an exercise of rewarding workers on
the basis of their reaching the budget
targets.
23. 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 centers.
4. Taking corrective action.
24. Main areas of cost control
Materials
Labor
Sales
Power and energy
