Page 1 : 4.1.8 TYPES OF BUDGET, , , , , , , , Generally, budgets are of different types depending on the basic objectives and the SCOpe of, budgets. The types of budgets as per various bases as shown in Figure 4.3 areas under:, , , , , , TYPES OF BUDGET, , , , , , (, , , , As per, Time, , , , , , , , , , , , , , , , , , , , 1) Long-term Budgets 1), 2) Short-term Budgets 2), , 3) Current Budgets, , 3), 4), 5), 6), 7), 8), 9), , , , As per As per Variability/, Functions Flexibility, Sales Budget 1) Fixed Budget, , Selling and Distribution 2) Flexible Budget, Cost Budget, , Production Budget, , Production Cost Budget, , Plant Utilisation Budget, , Purchase Budget, , Capital Expenditure Budget, , Cash Budget, , Research and Development, Cost Budget, , 10) Labour Cost Budget, Fig. 4.3 : Types of Budget, , ieee

Page 2 : pepe saaeca erst, , [4.1.8.1 AS PER TIME ae eg 4d mF, ASE c, , Basel an Budgetary conta, , xe Contre, , Types of bud, . Bet a, gudgets and Current Dados time, , y Long-term Budgets, , , , , , SAN be of, three, "YPeS viz. Long-term Bug, Bets, Short-T,, erm, , These budyets are concern, over a prospective period of, pudgets are usually being pre, , “Short-term Budgets|, , ed with, Plannj, a longer INE the, ser time - Operational activies, Pared in terms a Period of five oe of a cor, S Of physica) aia ten or even ion business, es, ears, These, , These budgets are usually bei, and are expressed in the witictor ye he eu, ¥ terms, ehonet Period « a period of, one to two year:, years, , = Current Budgets, gy_ Current Budgets|, These budgets relate to the current, period ithi, , pudget i generally broken on, Monthly, quarterly or haif yearly b, y Y basis for effective im, plementation, , f the same. Thus, current bud, vailing situations. ets are the short-term budgets adj, acjusted to current a, t conditions or, , 2 AS PER FUNCTIONS, , , , , , , , , , , , 4.1.8:, , Types tone oe 4s per functions relates to vari, gence ane) Hence es teehed As ‘Functional Berna fencing Via, business activity which can be a purchase eat These Dbucigets relates to a particular, ee ae Pn ee budgets Tepe ea See ee ee, } Sales Budget, 2) Selling and Distribution Cost Budget, 3) P Jarge scale undertakings are Cosi Budget, 5) Plant Utilisation Budget, 6) Purchase Bud a Ge: Budget 3) Erosscuan, 8) Cash Budget, 9) Research and Development Cost Budget, 0) ee ceteneess ables, , ) Sales Budget, , [Meaning], , It is the basic found, , , , onal budgets are built up. A Sales Budget, d values of anticipated sales during a, ep in the preparation of a sales budget., f a Sales Manager in consultation and, of sales is not an easy job. It requires @, ection of relevant facts and, , ch the firm is placed. The, se used for established, , ation upon which other functi, , is a statement expressed in physical quantities or/an, specified period of time. Sales forecasting is the basic st, It is done by the sales department under the charge ©, , co-operation with the Budget Controller. The forecasting OF $4, ‘ot of skill and knowledge in the techniques of sales forecasting, coll, , figures and an understanding of the business environment in ae 7, techniques of sales forecasting for new products are different from tho, , products., , , , Definition, A Sales Budget is defined as, ay and value s, “a statement a planned sales expressed in a a — A sales quantit oe pot, In case of established product ihe firm. The sales departmen, able wi, , selling campaign are aval

Page 3 : ‘ WY Bscsscanaoen in jet and, Management Accounting 00 : Lente,, ature of competition, availability of Substitutes, ,, , knowledge about its market share, 0), preldretines etc. The sales data for the Jast few gests are Sor pola ta {ep 'thers, , i ich § ically ita tren 2 apola Know, s, "Time Series’ which is statistically deall to ue reed by business firms tor the Sues eee, , future. This technique is quite simple and ecaaed only if the Time Series do not Show les, , ie ‘ i itably 4, Te aye de for seasonal and stochastic variations, Violen, , fluctuations and corrections are rightly ma Scr, verti i chniques. As expan, advertisement and other sales promotion techniq will reveal the degree Penditire, , ; ESATA eriods, on advertisement and amount of sales in different time P' ; Mpa,, of advertising cost on amount of sales. Thus, sales should be predicted only after , ori ich , le, consideration to the advertisement budget for the pe riod for which a sales budget jg being, , ared. er, ot It is the first budget which is prepared in most of the at emits meee is the Tisai, difficult budget to prepare and the success of the budget system : the whole Organisation, depends upon the sales budget. A sales budget indicates the number of units, to be sold, at what, price and what types of products are to be sold. The Sales Manager is responsible for 4,, preparation of the sales budget. He is supported by the salesmen and also the market Tesearch, , department., Important Factors, While preparing the Sales Budget the following factors are necessary to consider, i) Pos:, Sales, ii) Future economic, industry and market conditions, iii) Threat of competition, iv) Amount, to be spent on advertisement, v) Intuition of the Sales Manager, vi) Profitability of the produc,, vii) Market research studies, viii) Pricing policies, ix) Competitions, x) Plant capacity, xi) Sales, , , , , , , , , , trends of other joint products if any etc. . oat, d economic environment within and outside the, , The consideration of prevailing and expecte i, industry is essential before any decision on budgeted sales is taken. The management should give, , proper Valuation in their estimation for sales for factors such as the structure of national income,, Government fiscal and monetary policies, industrial policy, import-export policy, demographic, , structure etc. in so far as they influence the demand for firm's products., In a modern age of competition, sales is generally a limiting factor. In case of certain, , products, sales may not be a constraint and the estimated sales might be much higher than the, production facilities available within the firm. Under such a situation, the possibilities of, increasing production should be found out and the production budget can be prepared first., , The data of budgeted sales can be arranged in a number of ways. They can be grouped, according to commodity, territory or salesman-wise. Consider the following form of a sales, , budget according to commodity-wise., , Proforma of Sales Budget, The proforma of Sales Budget can be drawn as follows :, , , , , , , , , , , , , , In the books of a Company, Sales Budget for the period ending ..., Year _ Product A ! Product B Total, Months [ Quantity ' Value | Quantity Value Quantity Value, Units * | tee z Units zg, , , , , , , , , , , , , , , , , , , , , , |

Page 4 : Management Accounting, As the sales forecast provides ne, pudgets viz. production budget, purehas, , rere TN — Budget and Budgetary Control, we cost data for developing the other functional, © budge i i i, , itis absolutely essential to analyse the sales inte oe aes, , & 3 according to ti, of the business firms, Sales Budget is cara '% to the products and areas. Hence, for most, , iget ered to he a key bud et,, Selling and Distribution Cost Budget ? : |, , It relates to estimates of cost of Selling and distributi period, , d ' a 'stribution of goods during the bud ted peri, This budget is totally based on the sales budget. It is siesates on the bi i f : 3, taking into consideration a number of fact meee, , Ors Such as future trends, economi iti, to €0 ue \ ic conditions, competition in the prevailing market, Usually, this budget i ai, , according to elements such as direct selling expenses, advertising expenses etc., , This budget is prepared after the sales budget because the sales to be made are estimated in, the sales budget so that how much quantity should be produced can be known. Thus, a, production quantity budget is one which is an estimate for the quantities of goods to be, purchased during the budget period. It is expressed either in units or Standard hours., , [important Factors, , The following factors should be taken into consideration while preparing the production, quantity budget., , , , , , , i) Forecast of sales, ii) Requirement of stock to be maintained, iii) Plant capacity, iv) Spares, and components to be purchased, v) Make or by buy decisions, vi) Production’ cycle,, vii) Production policy of management., , | Objectives, , A production budget is to be prepared to achieve the following important objectives :, to produce quality products as planned in advance., , , , it) to maintain the production scheduled., , iii) to make the output as per the requirement., iv) to avoid excessive inventory of work-in-progress and finished goods., ) to make the production with the most economical process., ¥i) to make optimum used of available resources., ) efforts to be taken to reduce scraps and wastages., Yi) to exercise control on material cost, labour cost and overhead cost., ), , to facilitate preparation of cash budget.

Page 5 : Bud t and Budgeta Conte j, Piha a, Management Acoounti ————— 5, agement Accounting ,, 1, Proforma of Production Budget vn as follows? i, The proforma of Production Budget can he dra aay, In the books of a COM riod erndimg -e--———_ :, petit Production Budget fin Units) for mel 7 ) ', __ Production Buege’™ meat 5, | Particulars its | Units |, , —~, , , , , , | Sales, Add: Closing Stock, , , , , , be ll eee |, of goods that can be produced, udgeted sales, then the firm wil!, , Less: Opening Stock |, jon Abe, Estimated Production > amount fg, , , , An analys' ve faclors will Sug, ysis of the above faclor: aig! jess than the bi, , within the factory. If the i ;, y: calculated product! see ts for which i, Not be in a position to maintain the sales budget and ean sufficient Pree before sa, it Tn such a situation, the firm should expior! following POS e, decision on production budget., i) Can the inventory level be reduced ?, , ii) Can the plant utilization capacity be, , ap?, a) Production Cost Budget!, , Meaning, et shows the details of the, , This budget is prepared after ti Production Budget. This budg, oe ee cr the quantities shown in the production, , estimated costs which are required to be incurred as pe ), budget. The details include materials cost, labour cost and overheads. The overheads again, include variable, semi-variable and fixed costs. The casts are classified and analysed according lo, the products or departments, :, , ‘The Production Cost Budget depends upon :, , i) Production budget, , ii) Estimated increase in wages, salaries and expenses, , iii) Estimated increase / decrease in the price of raw materials and other supplies., , , , increased OF additional plant installed to fill the, , , , Proforma of Production Cost Budget, , The proforma of Production Cost Budget can be drawn as follows :, In the books of a Company, Production Cost Budget (in value) for the period ending ......, , “= Particulars Periods |, = pd 5 ir Department __Tot, , Units to be voduced as per Production Budget | = I a, i Costs : : | z | zg \, | A) Direct Material | |, ' B) Direct Labour | ', i C) Direct Expenses | |, , , , , , D) Factory Overheads :, , + Variable |, © Semi-variable, | + Fixed i, , { , ‘ ae =, i . Total Cos atBeCeD) (iigee te oe _ Aes, , FE) _ Production Cos!, , i