Types of Budgets and Budgeting Techniques



Types of Budgets and Budgeting Techniques

Unit 2 Individual Project

Introduction

Business is all about money, its main goal to profits through appropriate use of economic resources thus it is very important to plan business operations within reasonable limits, key an eye on revenues and expenses to minimize the risk in the operations of the organization, and this can be done with the help of effective and efficient budgeting. Each contractor and informed business owner knows the importance of developing the company budget (Sullivan, 2003). This not only facilitates the forecasts of tax but also keeps an eye on the financial situation (financial profitability) of the business. Without a budget, a company runs the risk of spending more resources than it has or vice versa, it cannot mobilize enough resources to grow the business and play effectively on competition. Every business has its own rules and methods of preparing such important document of the company. In this paper being manager of ABC Company, I shall be explaining different type and techniques of budget.

Budget

Before talking about types of budget it is very important to understand the concept of budget. The budget is a management tool to set a spending and savings plan. The budget is an inclusive and coordinated plan expressed in financial terms (Robert, 1997). A well planned budget is like a compass that is marking the way to go to managers for operations of a company in the most efficient and is a really useful tool for management of any organization if the persons responsible totally are involved in its development (Collier & Berry, 2002).

Types of Budget

There are several types of budgets, each of its importance.

Sales budget

The budget depends on the productive capacity of the company. It is often prepared in accordance with results obtained in previous years, according to the current economic situation, and according to statistical results analyzing consumer behavior. A time division by geographic region or by product may be possible.

The budget productions

This type of budget is commonly expressed in physical units. This budget makes all the necessary requirements to production as raw materials, labor and other indirect production costs (Cluskey, 2000).

Shopping Budget

It is the budget that foresees purchases of raw materials and goods to be made during a given period. It is usually made in units and costs (Robert, 1997).

Operating budget

An operating budget describes the total operating expenses and utility for the organization, usually for a period of one fiscal year.

Capital budgets

Capital budgets evaluate the investments and assets of the company and a cash budget shows the expected cash flow in and out of the company for a period of time. The capital budget is set against operational and cash budget.

Budgeting Techniques

To build the budget of the ABC Company, we shall have our own particular process of budgeting. But in general, we shall review the different costs of the company. To build the ABC company budget, several steps are necessary (Alagiah, ...