Budget is the very important factor that plays an important role in the survival, development the and success of the organization. The main aim of performing a budget operation is to control the production and other costs of the organization and to maximize the profit.
In addition budget planning also help the organization for its future and other requirements. A clear-cut budget planning leads the organization towards the successful path. In this blog, you will learn clearly about the preparation types of budget homework answers.
What is budgeting?
Perfect planning and execution are very important for smooth functioning of any type of organization. Budget planning helps the organization to know about the expenses and other revenue operations that are carried out in future. Budgeting is estimating the future cost for the smooth functioning of an organization.
Through budgeting, the organization prepares the detailed financial statement for the long time or short time. Finance department prepares the budget plan in every organization by consulting the higher management.
The budget plan is prepared for operating various functions like planning the organization activities, introducing or developing the projects, testing and implementing the ideas according to the plan.
The main aim of budget planning is to increase the profit making chances within the organization environment and help the management in a decision-making process. The entire approach of budget planning purely depends on the type of organization. There are many types budgets here you will read about the preparation types of budget homework answers.
Types of budgets
- Sales budget
- Production budget
- Overheads budget
- Personnel budget
- Financial budget
- Master budget
Manuals as preparation types of budget homework answers can help you in understanding details of this context.
- Sales Budget
The sales department is one of the important parts of the organization it is also known as the nerve center of the organization. The sales budget is the estimation of selling and income expenses of the organization. Other department budgets are totally based on the sales department budget. Sales budget means estimating the sales for certain period of time both in value and quantity.
Therefore the main objective of sales budget is to show what are the product will be sold in future, at what price and quantity. Estimating the sales budget not only narrates the sales volume but it also separates the product and area in which the sales will carry on.
- Previous sales figure and trends
- Estimation and reports were given by the sales person
- General economic condition
- Market competition
- Fluctuations according to seasons
- Government control
- Production Budget
The production department is one of the important parts of every organization. Smart functioning of production department leads to the great success of the organization. The production budget of the organization is prepared based on the sales budget.
However, it also considers the required stock level that has to be maintained. The production budget contains the manufacturing program and anticipates the cost of production in the organization.
The structure and goal of production budget differ from industry to another industry. The overall production budget is divided into the production per product or article per month by considering the demand for the product in the market. The production department must correlate and adjust its production according to the sales forecast.
The production budget is prepared by the production manager by keeping the following factors in the mind:
- Sales budget
- Plant capacity
- Inventory policy
- Raw material availability
The production budget is again divided into several budgets. With manuals as preparation types of budget homework answers, you will get a better idea of this whole system.
- Material budget- The main purpose of preparing the material budget is to fix the cost and quantity of raw materials that are required for uninterrupted production flow.
- Labor budget- Maximum and minimum number of labors for various jobs is estimated in labor budget.
- Plant and equipment budget- Needs for the extra machinery and tools are estimated under plant and equipment budget.
- Research and development budget- This specifies about the estimated cost of the research and development for inventing the new products or for improving the standard of the existing product.
- Financial budget
A financial budget is carried out a requirement of capital cost for both short term and long term needs of the organization at various levels in future. The main objective of the financial budget is to ensure the adequate and regular supply of funds at a perfect time. The cash budget is the important part of a financial budget.
Cash or financial budget contains the estimated receipts and cash payments at the specified period. The financial budget serves as an effective device for controlling and coordinating the activities involved in receipt and cash payment activities. This also contains the estimation of profit and expenditure of the organization.
- Over heads budget
The overhead budget is an estimation of costs of all types of indirect expenses such as indirect labor, materials, factory expenses that are needed during the budget period for attaining the targets.
In short, the estimation of factory overheads, administrative overheads, and distribution overheads are known as the overheads budget. This overhead budget is prepared on the departmental basis for the purpose of effective control over the costs.
The factory overheads are divided into three categories: fixed overheads, variable overheads, and semi-variable overheads. With preparation types of budget homework answers, you will get a better idea of these types.
- Personnel budget
The personnel budget estimates the requirement of man power for all the departments for the budgeted period. It estimates the labor requirement in terms of hours, cost and grade of the labors. The personnel manager must provide the required number of labors to the particular department either by transfer or new recruitments.
- Master budget
The Institute Of Cost And Management Accounts, England defines the master budget as the summary budget that incorporates the entire functional budget and finally approved and implemented. The master budget is prepared by the consolidating departmental or by the functional budgets.
This blog has defined the detailed information about the preparation types of budget homework answers. This will be very useful for the students who are looking for different types of budget planning in the organization.