Functional Classification of Budget

According to this basis of classification, budgets correspond and are co-terminus, with a particular function and are integrated with the master budget of the business. These are called functional budgets whose number depends, on the size and nature of the business. The usual functional budgets of a business are :

  1. Sales Budget. This is a forecast of total sales, classified according to groups of products, salesmen and geographical locations.
  2. Selling and Distribution Cost Budget. This is a forecast based on sales, productive capacity and requirements of inventories, etc.
  3. Introduction Cost Budget. This is related to the cost of production, including direct materials cost, direct cost and expenses- fixed variable and semi- variable.
  4. Purchase Budget. Correlated with sales forecast and production planning, it deals with purchase that is required for planned production. Purchase would include both direct and indirect materials and goods.
  5. Personnel Budget. This has reference to the utilization of men and would include labor employed in productive activity. This would be spat up between direct and indirect labor.
  6. Research Budget. This relates to improvement in the quality of the product or research for new products.
  7. Cash Budget. This is a sum total of the requirements of cash in respect of various functional budgets as well as anticipated cash receipts.
  8. Plant Utilization Budget. This is intended to cover the plant and machinery requirements to meet the budgeted production during the period. Schedules will be produced showing the available load in each department expressed in standard -hours or units.
  9. Office and Administration Budget. This budget represents costs of all administrative expenses, such as managing director’s salary, staff salaries and expenses of office management like lighting and cleaning.
  10. Capital Budget. This is a forecast of outlay of fixed assets as also of the sources of capital budget. It may differ from that of other budgets as such expenditure is frequently planned a number of years in advance.
  11. Master Budget. This ultimate integration of separate, budgets by the accountant provides the Master Budget, which includes estimated profit and loss account for the future period, and an estimated Balance Sheet at the end thereof.

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