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Introduction to Variance in Decision making

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Budgetary control WHAT IS A BUDGET? • “ Budget is a plan expressed in terms of money. • It is prepared and approved prior to the budget period. • It shows income, expenditure and the capital to be employed to accomplish the targets.” 2 CLASSIFICATION OF BUDGETS ACCORDING TO TIME ACCORDING TO FUNCTION 1. 2. 3. 4. 1. Sales budget 2. Production budget 3. Cost of Production budget 4. Purchase budget 5. Personnel budget 6. R & D budget 7. Capital Expenditure budget 8. Cash budget 9. Master budget Long term budget Short term budget Current budget Rolling budget ACCORDING TO FLEXIBILITY 1. Fixed budget 2. Flexible budget 3 1. SALES BUDGET: Sales budget is the most important budget based on which all the other budgets are built up. This budget is a forecast of quantities and values of sales to be achieved in a budget period. 2. PRODUCTION BUDGET: Production budget involves planning the level of production which in turn involves the answer to the following questions: a. What is to be produced? b. When is it to be produced? c. How is it to be produced? d. Where is it to be produced? 4 3. COST OF PRODUCTION BUDGET: This budget is an estimate of cost of output planned for a budget period and may be classified into – • Material Cost Budget • Labour Cost Budget • Overhead Cost Budget 4. PURCHASE BUDGET: This budget provides information about the materials to be acquired from the market during the budget period depending upon the inventory policy of the ...
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