You are on page 1of 6

Budgets

Unit - IV
Budgets are a widely used technique of managerial
control. Use of budgets for the purpose of control is
known as Budgetary control.
Nature of Budgets
A budget is a statement of anticipated results expressed
in numerical (physical or financial ) terms for a specific
period of time in future. It is an estimate of expected
future results and requirements.
According to the Institute of Cost and Management
accountants, London, a budget is a financial and /or a
quantitative statement , prepared and approved prior to
a period of time, of the policy to be pursued during that
period for the purpose of attaining a given objective.
Features of a Budget
This definition reveals the following features of a budget.
1.A budget is always prepared for a definite period of time in future.
2.A budget indicates expected results and the resources required to
achieve those results.
3. A budget is expressed in physical or financial terms.
4. A budget provides a standard for the evaluation of actual
performance and therefore it is a control technique.
5. A budget reflects the policy of the management and it is prepared in
advance and approved by the designated authority.
6. A budget is based upon a forecast or scientific estimate of future
events. It is the blue print of the proposed plan of action.
Types of Budgets
Several types of budgets are prepared and used in business .
The various types of budgets are given below:
1. Sales Budgets
Sales budget is a forecast of the total volume of sales and
also its break up product wise and area wise .
2.Production Budget
Production budget lays down the quantity of goods to be
produced during the budget period. It is prepared on the basis
of the sales budget.
3.Materials Budget
Materials budget lays down the quantity and quality of raw
materials required for achieving the desired output during the
budget period . It is base don production budget.
4.Labour Budget
The labour budget lays down the estimate of direct and
indirect labour requirements for a given period of time.
5.Cash Budget
Cash budget contains detailed estimates of cash receipts and
cash payments for the budget period.
6.Capital Expenditure Budget
Capital budget consists of the estimates of capital
investments in plant, machinery , furniture and other fixed
assets.
7.Overheads Budget
This budget contains estimates of overhead costs. It may be
sub divided into three parts 1. Factory overheads2.
Distribution overheads 3. Administration overheads.
8. Master Budget
Master budget is the budget for the enterprise as a
whole. It incorporates all functional budgets. After they
are approved and adopted. Master budget is a
coordinated summary of departmental budgets.
9.Fixed and Flexible Budget
A fixed budget is based on a specified level of
operations and it does not show changes in expenditure
according to changes in the scale of operations. It is
designed to remain fixed.
A flexible budget shows changes in costs according to
varying level of operations.