Commonly used functional budgets
Functional budgets relate to different functions. Some of the commonly used functional budgets are given below:
1. Sales Budget: Sales budget gives the estimate of expected sales in the budget period. It lays down potential sales figures in quantity as well as in value. Sales budget is prepared by the sales manager by taking into account the factors such as past sales figures, assessment by salesman, availability of raw materials, seasonal fluctuations, availability of funds, plant capacity, etc. Sales budget is the starting point and only on the basis of it other budgets are prepared.
2. Production Budget: Production budget is prepared on the basis of sales budget. It gives the estimate of production for the budget period. It is prepared by the works manager by considering
- sales budget,
- production capacity,
- quantity of stock to be maintained,
- availability of materials, labor, etc.
3. Materials Budget: Materials budget is an estimate of the quantity of raw materials required for production, product-wise. It is prepared by considering the factors like raw materials required for the budgeted production, time lag between the placing of order and the receipt of the materials, availability of storage facilities, opening stock and closing stock, price trends, etc.
4. Labor Budget: Labor budget gives the forecasts of labor time needed for production and the finance required for labor. It is helpful to the personnel department to make arrangements for recruitment of workers, etc.
5. Manufacturing Overheads Budget: Manufacturing overheads budget indicates the manufacturing overheads to be incurred during the budget period. Manufacturing overheads may be classified into fixed cost, semi-variable cost and variable cost.
6. Administrative Overhead Budget: It is an estimate of administrative overhead to be incurred in the budget period. Examples of administrative overhead are salaries, rent, office expenses, insurance, etc.
7. Distribution Overhead Budget: This budget indicates the selling and distribution expenses to be incurred during the budget period. E.g., transportation cost, commission, advertisement, traveling expenses, salesman’s salary, etc.
8. Cash Budget: A cash budget is an estimate of cash receipts and payments during a future period of time. It is prepared by the chief accountant in order to ensure that sufficient cash is available for both revenue and capital expenditures.
9. Capital Expenditure Budget: This budget gives an estimate of expenditure on fixed assets in the budget period. This budget is prepared for a longer period say 5 years, 10 years, etc.