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Unit 7: Budgeting

Constant budget is mainly meant for the fixed overheads of the firm, which are constant in Notes
volume irrespective level of production.
Zero-base budgeting is one of the renowned managerial tools, developed in the year 1962
in America by the Former President Jimmy Carter.

The Zero-base budgeting considers the current year as a new year for the preparation of the
budget but the yester period is not considered for consideration.

7.9 Keywords

Budget: A financial statement prepared for specified activity for future periods.

Budgeting: Activity of preparing the budget is known as budgeting.
Budget Control: Quantitative controlling technique to assess the performance of the
organization.
Cash Budget: It is a statement prepared by the organization to identify the future needs and
receipts of cash from the yester activities.

Flexible Budget: It is a financial statement prepared on the basis of principle of flexibility to identify

the cost of the unknown level of production from the existing level of operational capacity.
7.10 Review Questions

1. From the following figures extracted from the books of KPZ Ltd., Prepare raw materials

procurement budget on cost:
Particulars A B C D E F
Estimated stock on Jan. 1 16,000 6,000 24,000 2,000 14,000 28,000
Estimated stock on Jan. 31 20,000 8,000 28,000 4,000 16,000 32,000
Estimated consumption 1,20,000 44,000 1,32,000 36,000 88,000 1,72,000
Standard price per unit 25 p .10p .50p .30p .40p .50p
2. Sankaran Bros sell two products A and B, which are manufactured in one plant. During the

year 2006, the firm plans to sell the following quantities of each product.
Product April-June July-September October- December January-March
Product A 90,000 2,50,000 3,00,000 80,000
Product B 80,000 75,000 60,000 90,000
Each of these two products is sold on a seasonal basis Sankaran Bros, plan to sell product
A through out the year at price of ` 10 a unit and product B at a price of ` 20 per unit.
A study of the past experiences reveals that Sankaran bros has lost about 3% of its billed
revenue each year because of returns (constituting 2% of loss if revenue allowances and
bad debts 1% loss).

Prepare a sales budget incorporating the above information.
3. Gopi & Co. Ltd. produces two products, Alpha and Beta. There are two sales divisions viz.
North and South. Budgeted sales of the year ended 31st December 2009 were as follows.

Division Products Units Price per unit (`)
North Alpha 25,000 10
Beta 15,000 5
Contd…

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