Functional Budget

A functional budget is a statement of income and/or expenditure applicable to a particular function, department or process.

Sales Budget

This is generally the starting point for the preparation of the functional budgets. It shows the quantities and values of each products to be sold during the next year, usually broken down into quarterly and monthly figures. It may be further classified into product groups, areas or territories, salesman or agent wise, types of customers, etc.

Selling and Distribution Cost Budget

After sales budget is finalised and approved, selling and distribution cost budget is prepared based on the selling and distribution planned during the budget-period. Most of the expenses are related to the sales volume, and, therefore, estimated by the sales manager. Other expenses which are not directly related to sales-volume, such as advertising, sales promotion, market research, etc. are determined by marketing manager and conveyed to the sales manager for incorporation in the budget.

Production Budget

This is prepared by the Production Manager and shows the quantities of the products to be made, the departments which will produce them and the time within which the production will take place. The product budget is built up from plant utilisation budget, which shows the extent of utilisation of plant and machinery.

Labour and Manpower Budget

This budget will show the number of each grade of workmen required to produce the target output which has been approved by the budget committee. It will also indicate anticipated labour cost for the budget period, and the period of training that would be required for the additional workmen, if required to be recruited. However, the labour cost has to be classified into direct and indirect labour for incorporation in variable cost and fixed overheads.

Materials Budget

This will project the total quantities and value of each item of raw-materials, components and packing materials that will be consumed in the process of producing the budgeted output. It will take into account the projected inventories at the commencement of the budget period and the inventory norms fixed by the management and determine the quantities and value of materials that are needed to be purchased. This can be scheduled by the months when the materials will be required. Preparation of this budget requires the anticipation of material prices prevailing during the budget period.

Production Cost Budget

With the help of production budget, material budget, labour budget and expense budget, the cost department normally prepares production cost budget for each of the intermediate and final products.

Capital Expenditure Budget

Based on the plant utilisation budget, capital assets required for the production departments are projected. Other assets required for administration and other departments shall be considered while preparing and placing for approval of total capital expenditure budget before the budget committee.