Question

There is a Budget to suit every business and its need. Elucidate.

Answer 1

1. Sales Budget:
   (a) This budget shows what finished products can be sold in what quantities and at what prices.(an estimate of future sales)
   (b) It may be prepared product wise, region wise, customer wise and period wise.
   (c) It is often broken down into both units and currency.
2. Production Budget: It is always based on sales budget. It is generally prepared into two parts:
   (a) It shows the estimates in volume or quantities. It estimates the number of units that must be manufactured to meet the sales goals.
   (b) It shows production cost. The production budget also estimates
   the various costs involved with manufacturing those units, including labour and material,
3. Capital Budget:
   (a) It is generally prepared to estimate the total capital required for acquiring the fixed assets for fulfilling the production demand of an organisation.
   (b) Long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. Capital required for developing research and development should be totally different from the work of manufacturing unit.
   (c) The capital budget helps you figure out how much money you need to put in place of new equipment or procedures to launch new products or increase production or services.
   (d) This budget estimates the value of capital purchases you need for your business to grow and increase revenues.
4.  Cash Flow/Cash Budget/Financial Budget:
   (a) It is one of the important budgets because success of any business totally depends upon the cash flow management and liquidity.
   (b) It gives a prediction of future cash receipts and expenditures for a particular time period. A cash flow budget details the amount of cash you collect and pay out.
   (c) It usually covers a period in the short term future.
   (d) It helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing.
   (e) It makes a provision for minimum cash balance which will be available at all times.
   (f) The minimum cash balance should be equal to one month’s operating expenses including contingencies.
   (g) A positive cash flow is essential to grow your business.
5. Marketing Budget: It is an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service.
6. Project Budget:
   (а) It estimates of the costs associated with a particular company project. These costs include labour, materials, and other related expenses.
   (b) The project budget is often broken down into specific tasks, with task budgets assigned to each. A cost estimate is used to establish a project budget.
7. Operational Budget:
   (a) An operational budget is the most common type of budget used.
   (b) It forecasts and tries to closely predict yearly revenue and expenses for a business.
   (c) It is a short term budget.
   (d) This budget can be updated with actual figures on a monthly basis and then you can revise your figures for the year, if needed.