Some of types of Budgets are: (i) Sales Budget (ii) Production budget (iii) Financial budget (iv) Overheads budget (v) Personnel budget and (vi) Master budget!
(i) Sales Budget:
A sales budget is an estimate of expected total sales revenue and selling expenses of the firm. It is known as a nerve centre or backbone of the enterprise. It is the starting point on which other budgets are also based. It is a forecasting of sales for the period both in quantity and value. It shows what product will be sold, in what quantities, and at what prices.
The forecast not only relates to the total volume of sales but also its break-up product wise and area wise. The responsibility for preparing sales budget lies with the sales manager who takes into account several factors for making the sales budget.
Some of these factors are:
(i) Past sales figures and trend ;
(ii) Estimates and reports by salesmen ;
(iii) General economic conditions ;
(iv) Orders in hand ;
(v) Seasonal fluctuations ;
(vi) Competition ; and
(vii) Government’s control.
(ii) Production budget:
Production budget is prepared on the basis of the sales budget. But it also takes into account the stock levels required to be maintained. It contains the manufacturing programmes of the enterprise. It is helpful in anticipating the cost of production.
The nature of production budget will differ from enterprise to enterprise. For practical purposes, the overall budget should be divided into production per article per month, looking into the estimate of the likely quantity of demand. It is the responsibility of production department to adjust its production according to sales forecast.
It is made by the production manager keeping in mind the following important factors:
(i) The sales budget ;
(ii) Plant capacity ;
(iii) Inventory policy ; and
(iv) Availability of raw-materials, labour, power, etc.
The production budget is often divided into several budgets:
(i) Material Budget- which fixes the quantity, quality and cost of raw materials needed for uninterrupted production ;
(ii) Labour Budget-which specifies the requirements of labour in terms of the number and type of workers for various jobs ;
(iii) Plant and equipment Budget- which lays down the needs of machines, equipment and tools including their repairs and maintenance ; and
(iv) Research and Development Budget-which specifies the estimated cost on research and development for developing new products and for improving existing ones.
(iii) Financial budget:
This budget shows the requirement of capital for both long-term and short-term needs of the enterprise at various points of time in future. Its objective is to ensure regular supply of adequate funds at the right time. An important part of the financial budget is the cash budget.
Cash budget contains estimated receipts and payments of cash over the specified future period. It serves as an effective device for control and coordination of activities that involves receipt and payment of cash. It helps to detect possible shortage or excess of cash in business. The financial budget also contains estimates of the firm’s profits and expenditure i.e., the operating budget.
(iv) Overheads budget:
It includes the estimated costs of indirect materials, indirect labour and indirect factory expenses needed during the budget period for the attainment of budgeted production targets. In other words, an estimate of factory overheads, distribution overheads and administrative overheads is known as the overheads budget. The capital expenditure budget contains a forecast of the capital investment.
This budget is prepared on departmental basis for effective control over costs. The factory or manufacturing overheads can be divided into three categories: (i) fixed, (ii) variable, (iii) semi-variable. This classification helps in the formulation of overhead budgets for each department.
(V) Personnel budget:
It lays down manpower requirements of all departments for the budget period. It shows labour requirements in terms of labour hours, cost and grade of workers. It facilitates the personnel managers in providing required number of workers to the departments either by transfers or by new appointments.
(Vi) Master budget:
The Institute of Cost and Management Accountants, England defines master budget as the summary budget incorporating all the functional budgets, which is finally approved, adopted and applied. Thus, master budget is prepared by consolidating departmental or functional budgets.
It is a summarised budget incorporating all functional budgets. It projects a comprehensive picture of the proposed activities and anticipated results during the budget period. It must be approved by the top management of the enterprise. Though practices differ, a master budget generally includes, sales, production, costs-materials, labour, factory overhead, profit, appropriation of profit and major financial ratios.