CLASSIFICATION AND TYPES OF BUDGETS
The budgets are usually classified according to their nature. The following are the
types of budgets, which are commonly used.
A) Classification According to Time
1. Long-term budgets.
2. Short-term budgets.
3. Current budgets.
B) Classification on the Basis of Functions
1. Operating Budgets
2. Financial Budgets
3. Master Budget
C) Classification on the Basis of Flexibility
1. Fixed budget.
2. Flexible budget
A) CLASSIFICATION ACCORDING TO TIME
1. LONG TERM BUDGETS
The budgets are prepared to depict long term planning of the business. The
period of long term budgets varies between five to ten years. The long term
planning is done by the top level management; it is not generally known to lower
levels of management. Long-time budgets are prepared for some sectors of the
concern such as capital expenditure, research and development, long-term
finances etc. These budgets are useful for those industries where gestation period
is long i.e., machinery, electricity, engineering, etc.
2. SHORT-TERM BUDGETS
These budgets are generally for one or two years and are in the form of monetary
terms. The consumer’s goods industries like sugar, cotton, textile, etc. use short-
term budgets.
3. CURRENT BUDGETS
The period of current budgets is generally of months and weeks, these budgets
relate to the current activities of the business. According to I.C.W.A. London.
“Current budget, which is established for use over a short period of time, is
related to current conditions.”
, B) CLASSIFICATION ON THE BASIS OF FUNCTIONS
1. OPERATING BUDGETS
These budgets relate to the different activities or operations of a firm. The
number of such budgets depends upon the size and nature of business. The
commonly used operating budgets are:
a) Sales Budget:
b) Production Budget:
c) Production Cost Budget:
d) Purchase Budget:
e) Raw Material Budget:
f) Labour Budget:
g) Plant utilization Budget:
h) Manufacturing Expenses or Production Overhead Budget:
i) Administration and selling Expenses Budget:
j) Capital Expenditure Budget:
k) Cash Budget.
a) SALES BUDGET:
Sales budget is a forecast of sales to be made in a given period. It is the
responsibility of the sales manager to prepare a sales budget after taking into
account the past sales market conditions and the efforts made to promote sales.
In this budget, the break up figures may be given in respect of the following:
1. Products
2. Areas or Territories
3. Types of customers
4. Salesmen
5. Period.
b) PRODUCTION BUDGET:
It is usually based on the sales budget and the level of inventory to be maintained.
It is defined as an estimated quantity of goods to be produced in a given period. It
also depends on the availability of materials and plant capacity.
c) PRODUCTION COST BUDGET:
It shows the break-up of various elements of cost and subdivisions. It is based on
production budget and shows the estimated cost of production if the production
is carried out according to production budget.
The budgets are usually classified according to their nature. The following are the
types of budgets, which are commonly used.
A) Classification According to Time
1. Long-term budgets.
2. Short-term budgets.
3. Current budgets.
B) Classification on the Basis of Functions
1. Operating Budgets
2. Financial Budgets
3. Master Budget
C) Classification on the Basis of Flexibility
1. Fixed budget.
2. Flexible budget
A) CLASSIFICATION ACCORDING TO TIME
1. LONG TERM BUDGETS
The budgets are prepared to depict long term planning of the business. The
period of long term budgets varies between five to ten years. The long term
planning is done by the top level management; it is not generally known to lower
levels of management. Long-time budgets are prepared for some sectors of the
concern such as capital expenditure, research and development, long-term
finances etc. These budgets are useful for those industries where gestation period
is long i.e., machinery, electricity, engineering, etc.
2. SHORT-TERM BUDGETS
These budgets are generally for one or two years and are in the form of monetary
terms. The consumer’s goods industries like sugar, cotton, textile, etc. use short-
term budgets.
3. CURRENT BUDGETS
The period of current budgets is generally of months and weeks, these budgets
relate to the current activities of the business. According to I.C.W.A. London.
“Current budget, which is established for use over a short period of time, is
related to current conditions.”
, B) CLASSIFICATION ON THE BASIS OF FUNCTIONS
1. OPERATING BUDGETS
These budgets relate to the different activities or operations of a firm. The
number of such budgets depends upon the size and nature of business. The
commonly used operating budgets are:
a) Sales Budget:
b) Production Budget:
c) Production Cost Budget:
d) Purchase Budget:
e) Raw Material Budget:
f) Labour Budget:
g) Plant utilization Budget:
h) Manufacturing Expenses or Production Overhead Budget:
i) Administration and selling Expenses Budget:
j) Capital Expenditure Budget:
k) Cash Budget.
a) SALES BUDGET:
Sales budget is a forecast of sales to be made in a given period. It is the
responsibility of the sales manager to prepare a sales budget after taking into
account the past sales market conditions and the efforts made to promote sales.
In this budget, the break up figures may be given in respect of the following:
1. Products
2. Areas or Territories
3. Types of customers
4. Salesmen
5. Period.
b) PRODUCTION BUDGET:
It is usually based on the sales budget and the level of inventory to be maintained.
It is defined as an estimated quantity of goods to be produced in a given period. It
also depends on the availability of materials and plant capacity.
c) PRODUCTION COST BUDGET:
It shows the break-up of various elements of cost and subdivisions. It is based on
production budget and shows the estimated cost of production if the production
is carried out according to production budget.
