Budget classification on the basis of functions, Financial Management


•Functional / Subsidiary budgets: A subsidiary budget is a budget of income or expenditure appropriate to or the responsibility of functions, like production, sales, purchase etc. every functional department prepares its own budget, and all these functional budgets are integrated into the Master budget.

Sales budget: it describes about price, volume, and sales mix.  It also gives details about the quantity of sale, monthly or quarterly, area-wise, market- wise and on whatever other basis which is main to the organization.  The responsibility for preparation of this budget falls on the sales manager.  While preparing this budget, he/she has to think on certain influencing factors like - past sales figures and trend, salesmen's estimates, plant capacity, general trade practice, orders in hand, proposed discontinuance or expansion of products, potential market,  seasonal fluctuations, availability of material and supply, finance etc.

Production budget: It describes about the types, quantity and cost of goods and services produced in the organization.  The duty of preparing this Budget falls on the Works managers.

Production cost budget:   It is break down into material cost budget, labour cost budget and overhead cost budget, because cost of production includes material, overheads and labour.

Materials budget:  It describes about the quantity and kinds of material required, price paid for it, storage and cost of transportation etc

Labour budget:  It describes about the number and types of workers, the number of hours required, the wage rates and other allowances, the welfare and extra facilities provided and cost thereof etc.

Overheads budget : It describes about the details of items of factory overhead expenses, their quantity and cost.

Research and Development budget :  each organization of some size, particularly, of a technical or manufacturing type, has a development and Research Department. Expenses incurred by it are parts of operating costs. Until efforts lead to some findings that can be used for advancement of quality of product technology improvement, or/and for producing something that is new, at which stage all expenses incurred are capitalized.

Capital expenditure budget :  This budget describes the estimated expenditure on fixed assets like land and buildings, plant and machinery, etc. It is a long-term budget.  Capital expenditure budget is prepared to plan for replacement of old machines, expansion of activities, in- creased demand of products, etc.

Cash budget: this budget deals with cash, including its equivalent, like bank balance and bills receivable.  It defines the inflows of cash and outflows of cash during a particular period of time.  It can be prepared for a year, but for better management and control of cash, it is usually prepared on monthly basis.  It takes into account only cash transactions.

Master budget:   master budget is prepared from, and summarizes, the variety of functional budgets.  It is also known as summary budget.  It usually includes details relating to stock, debtors, production, sales, cash position, fixed assets etc, in addition to important control ratios.

Posted Date: 10/15/2012 8:15:55 AM | Location : United States

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