Page 121 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes 5. Purchase Budget: This budget represents the purchases to be made during the
budget period. This will include direct and indirect materials and services.
Where, however, finished goods are purchased for resale, the purchasing budget
should take into consideration the requirements of finished goods for resale.
The purchasing budget may be expressed in terms of quantity or money.
Purchase budget is generally based upon:
(a) Sales and production budgets,

(b) Capital expenditure budget,
(c) Research and development cost budget,
(d) Purchase orders already placed,
6. Administration Cost Budget: Administration cost budget will show the total
estimated cost of formulating the policy, directing the organisation and
controlling the operations of an undertaking which is not related directly to
research, development, selling, distribution and production activity or
function. Most of the expenditures relating to administration will be of fixed
nature within defined limits, and, therefore, the preparation of this budget is
relatively easy as compared to other functional budgets. Thus, each department
or budget centre will be responsible for preparation of its own budget and
finally it will be incorporated in the administration cost budget. A specimen
of administration cost budget is given below:
Figure 6.3: Administration Cost Budget

Administration Cost Budget
Cost Centre: ............................. Period: ..............................
Department: ..............................
Months
Total
Description
(`) Jan. Feb. March April May June
(`) (`) (`) (`) (`) (`)
Indirect materials ... ... ... ... ... ... ...
Indirect wages and ... ... ... ... ... ... ...
salaries
Depreciation ... ... ... ... ... ... ...
Repairs ... ... ... ... ... ... ...
Miscellaneous ... ... ... ... ... ... ...
Total ... ... ... ... ... ... ...

7. Capital Expenditure Budget: A business organisation with manufacturing
activity, in particular, is required to undertake expenditure on fixed assets
like plants and equipments. This is affected to materialise its objective of
earning revenue through the sale of goods produced according to the
production budget. This expenditure on fixed assets is known as capital
expenditure. The budget that discloses the estimate of such expenditures of a
business organisation of unit for future period is called the capital expenditure
budget.
One should take note of it that the budget period, in the case of capital
expenditure budget, summarily differs from that of all other budgets.
Generally, capital expenditures are often planned well ahead of the actual

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