Page 136 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 7: Budgeting

Table 7.1: Forecast vs. Budget Notes
Forecast Budget
(i) Forecasts, being statements of future events, A budget is a tool of control, since it
do not connote any sense of control. represents actions that can be shaped
according to will so that it can be suited
to the conditions which may or may not
happen.
(ii) Forecast is a mere estimate of what is likely Budget shows that policy and programme
to happen. It is a statement of probable to be followed in a future period under
events that are likely to happen under planned conditions.
anticipated conditions during a specifi ed
period of time.
(iii) Forecasts have wider scope, since they Budgets have limited scope. They can be
can be made in those spheres also where made of phenomenon not capable of being
budgets cannot interfere. expressed quantitatively.
(iv) Forecasting is a preliminary step for It begins when forecasting ends. Forecasts
budgeting. It ends with the forecast of likely are converted into budgets.
events.

Self Assessment

Fill in the blanks:
1. ………………… means the process of preparing budgets.
2. Preparation of budgets involves study of business situations and understanding of
………………… as also the capacity of the organisation.

7.2 Types and Preparation of Budgets

The following figure explains the classification of budgets:

Figure 7.1: Classification of Budgets
Budgets
Functions Flexibility Time

Sales Budget Fixed Budget Long-term
Production Budget Flexible Budget Medium-term

Material Budget Short-term
Labour Budget
Manufacturing overhead budget

Selling overheads budget
Cash budget

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