Define budget, sales, production, cash, fixed budget

• Budget: a detailed plan, in money and/or quantities, of the expected income and expenditure of an organisation or project for a future period. Budgeting is the process of preparing and using budgets.

• Sales budget: an estimate of the quantity and value of sales for a future period, by product, area and month, prepared on the basis of past sales, market surveys and forecasts. It is the starting point of all budgets because sales are usually the key factor.

• Production budget: an estimate of the quantity of goods to be produced in a period.

$$\text{Production} = \text{Sales} + \text{closing stock} - \text{opening stock}$$

It is the base for the material, labour and overhead budgets.

• Cash budget: a forecast of cash receipts and payments in a period, showing the expected cash balance. It helps to plan borrowing or the investment of surplus cash.

• Fixed budget: a budget prepared for one level of activity and not changed even if the actual activity differs. It suits stable conditions and fixed costs, but it is not useful for control if output changes.

• Flexible budget: a budget designed to change with the level of activity; it gives the budgeted cost at different capacity levels (fixed costs stay the same, variable costs change). It is more useful for control and comparison.