---
title: "Short note: Types of budgets"
subject: "Project Engineering"
chapter: 6
key: "semester_7/project_engineering:types-of-budgets-note"
source: https://www.bctengineer.com/q/semester_7/project_engineering/types-of-budgets-note
site: BCT Engineering
---

# Short note: Types of budgets

Project Engineering · Chapter 6: Introduction to Project Financing

- Asked in: 2070 Chaitra (old course), 4 marks
- Video: [7 Common Approaches to Budgeting | Introduction to Different Budgeting Methods | Types of Budgets](https://www.youtube.com/watch?v=_daPgVOXltc) — ConsultKano
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_7/project_engineering/types-of-budgets-note
- Whole chapter: https://www.bctengineer.com/md/semester_7/project_engineering/chapter-6

## Question

Write a short note on the 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.

## Answer

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

1. **Sales budget:** expected sales in quantity and value; the base for other budgets.
2. **Production budget:** quantity to be produced = sales + closing stock - opening stock.
3. **Material, labour and overhead budgets:** cost of inputs for the planned production.
4. **Cash budget:** expected receipts and payments, with the closing balance.
5. **Capital expenditure budget:** plan for the purchase of long-term assets.
6. **Master budget:** the summary of all budgets, with budgeted profit and loss and balance sheet.
7. **Fixed budget:** for one level of activity only.
8. **Flexible budget:** changes with the level of activity; better for control.

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Production budget quantity is:
   A. Sales - closing stock
   B. Sales + closing stock - opening stock
   C. Sales only
   D. Opening stock only
   Answer: B. Production = sales + closing stock - opening stock. (Key point: Production budget)

2. The master budget is:
   A. Only the cash budget
   B. A fixed budget for a single item
   C. Summary of all budgets with budgeted profit and loss and balance sheet
   D. A capital plan only
   Answer: C. It summarises all budgets. (Key point: Master budget)

3. The capital expenditure budget is the plan for:
   A. Daily wages
   B. Sales
   C. Stock
   D. Purchase of long-term assets
   Answer: D. It plans long-term asset purchases. (Key point: Capital expenditure budget)

4. A fixed budget is prepared:
   A. For one level of activity only
   B. For all levels
   C. With variable changes
   D. Only for cash
   Answer: A. It does not change with activity; flexible budget does. (Key point: Fixed budget)