- 2070 Chaitra (old course) · 4 marks
Short note: Types of budgets
Short answer
Budgets are classified by time (long-term/short-term), function (sales, production, material, labour, overhead, cash, capital expenditure, master), flexibility (fixed, flexible), purpose (operating, financial), and project use. Key types: sales budget (base), production budget (quantity to produce), cash budget (receipts/payments), capital expenditure budget (long-term assets), master budget (summary). Fixed budget is for one activity level; flexible budget changes with activity.
Write a short note on the types of budgets.
A budget is a financial and/or quantitative plan for a future period. Budgets are classified as follows.
| Basis | Types |
|---|---|
| Time | Long-term and short-term budget |
| Function | Sales, production, material, labour, overhead, cash, capital expenditure, master budget |
| Flexibility | Fixed budget and flexible budget |
| Purpose | Operating budget and financial budget (cash, capital) |
| Project use | Project budget (cost of the whole project) |
Main budgets
- Sales budget: expected sales in quantity and value; the base for other budgets.
- Production budget: quantity to be produced = sales + closing stock - opening stock.
- Material, labour and overhead budgets: cost of inputs for the planned production.
- Cash budget: expected receipts and payments, with the closing balance.
- Capital expenditure budget: plan for the purchase of long-term assets.
- Master budget: the summary of all budgets, with budgeted profit and loss and balance sheet.
- Fixed budget: for one level of activity only.
- Flexible budget: changes with the level of activity; better for control.
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