Page 147 - DMGT202_COST_AND_MANAGEMENT_ACCOUNTING

Cost and Management Accounting

Notes Self Assessment

Fill in the blanks:

1. Budget is a statement of ....................... .
2. ....................... contains two different processes one is the preparation of the budget and
another one is the control of the prepared budget.
3. Budget is an estimate prepared for definite ....................... period.

4. Budgetary control facilitates centralised control with ....................... authority and
responsibility.
5. The budget is usually expressed in terms of ....................... .

8.3 Types of Budgets

On functional basis, the budgets can be classified into three categories.
Figure 8.2: 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

8.3.1 Production Budget

The preparation of the production budget is mainly dependent on the sales budget. The
production budget is a statement of goods, how much should be produced. It may be in terms of
quantities, Kilograms in monetary terms and so on.

Did u know?What is the purpose of the production budget?
The ultimate aim of the production budget is to find out the volume of production to be

made during the year based on the sale volume. The production and sales volume should

go hand-in-hand with each other, otherwise the firm would require to face the acute
problem on holding unnecessary excessive stock or inadequate stock to meet the needs of
the buyers in time; which will disrepute in the supply of goods in time to them as already
agreed upon.

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