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.
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
Subscribe by Email
Follow Updates Articles from This Blog via Email
5 Comments
Nice Article , That's Really Help me for learning Budget .. Good One
Reply DeleteKeep Updating New Things
thanks
Reply DeleteThanx for sharing
Reply DeleteLooking for Brisbane Accounting Firm? Wow! Advisors deal with accounting, bookkeeping, tax preparation, and financial reporting services for businesses according to their specific requirements. For More Info Call: 0731619548
Reply DeleteA financial advisor can help you in building the right portfolio management whether be the services and products.
Reply Delete