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Unit 6: Budgetary Control

2. Selling and Distribution Cost Budget: The selling and distribution cost budget Notes
is a forecast of the cost of selling and distributing the goods during the budget
period. This budget is generally based upon the sales volume as per sales
budget. However, certain other related information should also be taken into
consideration in the preparation of selling and distribution cost budget.

Example: Heavy amount for advertising may be planned for the budget period but its
benefits may accrue mainly in subsequent budget periods.
The preparation of the selling and distribution cost budget is the responsibility
of the sales manager. However, he will be assisted in this work by the
advertising manager, distribution manager, sales office manager and the
accountant.
Selling and distribution cost budget may be prepared by grouping the costs
according to elements. The said budget may comprise the following groups of
costs:
(a) Direct Selling Expenses: Such as salaries, commissions and expenses of
salesmen, motor car expenses, etc.
(b) Sales Office Expenses: These expenses are salaries, rent, rates, electricity,
depreciation, postage, stationery, telephone, general expenses, etc.

(c) Distribution Expenses: Such as wages of warehouse staff, rent and rates
of warehouse, electricity, lorry expenses, insurance, export duty, etc.
(d) Advertising Expenses: These expenses are viz. shop window display,
radio, roadside, coupon offers, leaflets, etc.
3. Production Budget: Production budget is prepared by the production manager,
showing the forecast of output. The objective is to determine the quantity of
production for a budgeted period. It is in quantity of units to be produced
during the budget period. Production budget is based on the sales budget.
Production budget is divided into two parts, i.e., one part contains the volume
of production and the other part shows the cost of production. Apart from the
sales budget, optimum utilisation of plant, availability of raw materials,
labour, etc., are to be considered. It must avoid overwork in rush reasons. It
must maintain a minimum stock of finished goods.
4. Production Cost Budget: The production budget, as it has been seen, determines
the volume of output. The volume of output can be achieved, if the required
cost for the purpose is incurred. As the budgeted production is an estimated
figure, the cost to be incurred to carry out that volume of production is also to
be estimated at the time of drawing out the production budget simultaneously.
Thus, the production costs budget is an estimated cost of output planned for a
budget period. It will show the detail estimate of costs to be incurred for the
budget period and is classified into material, labour and overhead costs, as
cost of production includes all these elements of costs.

Note Production cost budget is divided into material cost budget, labour cost budget
and overhead cost budget. In fact, production cost budget is an aggregate of material cost
budget, labour cost budget and overhead cost budget.

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