Types of Budget - tally training in chandigarh

Types of Budget

There are mainly two types of business organizations. They are manufacturing and trading 

concerns. They prepare different budgets as a part of profit plan which is mentioned below:

As per the requirement of syllabus, sales budget, production budget, materials consumption budget, 

materials purchase budget, direct labour budget, manufacturing overhead budget, cost of goods 

manufactured budget, administrative overhead budget, selling and distributions overhead budget 

and cost of goods sold budgets are discussed below.

Sales budget

A sales budget is the starting point in preparing the master budget. A sales budget is a detailed 

schedule of expected sales for the coming period. It is usually expressed in both amount and units. 

Once the sales budget has been set, a decision can be made on the level of production that will be 

needed to support sales and the production budget and be set well. The sales budget is 

accompanied by computation of expected ash receipt for the forthcoming budget period. It is needed 

to assist in preparing the budget for the year.

The primary source of cash is sales. The capital additions need amount of expenses to be planned, 

the manpower requirements, the production level and other important operational aspects depend 

on the volume of sales.Accounting is the method of record keeping and also an estimate about 

companies profit or loss. Accounting deals with analyzing and summarizing financial records. 
Accounting is the universal language of Business Development.

 Accounting courses in Chandigarh is beneficial for college graduate students who make their
 career in the field of Accounts and Finance.

There are some factors which are to be considered while preparing a sales budget.

a.    Past sales: a budget is prepared on the basis of the past sales and its trends. The effects of 

some external factors like climatic condition, business cycle, trade cycle, economic conditions etc 

are adjusted and the future sales figures are received.

b.    Estimation of sales manager: the estimation of different sales manager working in sales 

areas are also taken into consideration while preparing a sales budget.

c.    Production capacity: Sales is possible only when there is sufficient production. The production 

depends on production capacity. In this way, capacity is a factor that affects the preparation of sales 

budget.

d.    Available of raw material: it is necessary to have enough raw materials so as to have 

production and sales. So, availability of raw materials is one factor that affect to sales budget.

e.    Competition: the level of competition also determines sales. So, it should also be considered 

while preparing a sales budget.

Production budget

Production budget is prepared after preparing the sales budget. This budget is an estimation of the 

quantity of goods to be manufacturing during the budgeted period. In preparation of production 

budget, the first step is to formulate policies relative to inventory levels. The next step is to 

determine the total quantity of each product that is to be manufactured during the budgeted period 

and the third step is to make schedule the production for budgeted period.

This budget is prepared by the production manager taking information from sales budget, desired 

ending inventory and production capacity, following information are should be considered while 

preparing production budget.

•    Sales budget

•    Beginning and ending inventory policy

•    Installed plant capacity existing utilization

Material consumption budget

After the preparation of production budget, a direct materials or raw materials consumption budget 

should be prepared to show the materials that will be required in the production process. Sufficient 

raw materials will have to be available to meet production needs and to provide for the desired 

ending raw materials inventory. In any case, some amount of materials remained should be buy 

from a providers. This financial plan indicates the arranged amounts of every crude material by 

time, by utilizing duty.

Material purchase budget

Direct materials are required for the production and must be purchase in each period in sufficient 

quantities to meet production needs and to confirm to the company's ending inventory policies. 

The materials budget specifies the quantities and timing of each raw materials needed, therefore a 

plan for material purchase must be developed. Material purchase budget is prepared on the basis of 

materials consumption. It specifies the ending inventory raw materials, estimated quantities to be 

purchase and cost for raw material.

Merchandise purchase budget

Merchandise purchase means the value of trading goods for a trading goods for a trading concern. 

They are finished products bought by the trade to self them in the market. A manufacturing concern 

prepares raw materials purchase budget as it requires raw materials in production process. 

However, raw materials are not needed for trading concern, since it is not involved in production. 

Hence, it prepared merchandise purchase budget considering the expected sales, gross margin 

and stock of merchandise to be maintained.

Direct labour budget Coordinate materials are required for the creation and must be buy in 

every period in adequate amounts to address generation issues and to affirm to the 

organization's closure stock approaches.

Direct labour budget is also prepared on the basis of production budget. The direct labour included 

the estimation of direct labour requirements necessary to produce the types and quantities of output 

planned in the production budget.Coordinate materials are required for the generation and must be 

buy in every period in adequate amounts to address creation issues and to affirm to the 

organization's consummation stock strategies.

ordinate work necessities must be figured with a specific end goal to known the adequate work time

to address creation issues. By knowing in advance, the company can develop a plan to adjust the 

labour force as the situation may require. Planned direct hour can be determined by multiplying 

product to be produced in each period by the number of direct labour hours required to product a 

single unit. The hours of direct labour resulting from these calculations a then be mauled by direct 

labour cost per hour obtain the budgeted total direct labour cost.

The components of direct labour budget are calculated as under:

Total direct labour hours required = production units x standard time required per unit of output

Total direct labour cost = total labour hours and labour cost or wages rate per hour.

Next Article - Types of Budget - tally training in chandigarh

April 21, 2018

Subscribe by Email

Follow Updates Articles from This Blog via Email