Page 146 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 7: Budgeting

Notes
Payments
Plant Purchased ---------- --------- 5,000
Tax payable 6,000 --------- --------
Purchases 80,000 76,000 78,000
Dividend payable --------- --------- 10,000
Wages 8,400 8,800 9,000
Offi ce expenses 5,600 5,400 5,600
Selling expenses 4,200 4,300 4,000
Total Payments(B) 1,04,200 94,500 1,11,600
Balance (A-B) 59,800 95,300 1,05,700
Self Assessment

Fill in the blanks:
3. The preparation of the production budget is mainly dependent on the ........................
budget.
4. The production volume is connected to the ........................ environment of the fi rm.

5. ........................ budget takes place only after identifying the number of fi nished products
expected to produce to the tune of production budget.
6. ........................budget is one of the important sub functional budgets, prepared by the sales
manager.
7. Cost control contains two different processes one is the ........................ of the budget and
another one is the ........................ of the prepared budget.

8. ........................ overhead is the expense incurred for the promotion of the sales.

7.3 Classification of the Budget in Accordance with the Flexibility

7.3.1 Fixed Budget

It is a budget known as constant budget, never registers the changes in the preparation of a
budget, being prepared for irrespective level of output or production. This budget is mainly

meant for the fixed overheads of the firm which are constant in volume irrespective level of

production. The ultimate utility of the budget is to control the cost as a cost controlling measure,
but the fixed budget is meaningless in having comparison with the actual performance.

7.3.2 Flexible Budget

Flexible budget is prepared for any level of production as an estimate of statement of all expenses

i.e. the expenses are classified into three categories viz. variable, semi-variable and fi xed expenses.
The structure of the budget for any output is only to the tune of the actual performance achieved.
This is the budget facilitates not only to have comparison in between various levels of production
but also to identify the level of lowest production cost.

LOVELY PROFESSIONAL UNIVERSITY 141