Types of Budgets

Introduction to Types of Budgets

Budgets can be classified as per the following basis.

Ø  On the basis of Area of Operation

A. Functional Budgets- The functional budgets are prepared for each function of the organization. These budgets are generally prepared for a period of one year and then broken down to each month.

B.  Master Budget- A Master Budget that is also termed as 'Comprehensive Budget' is a consolidation of all the functional budgets. It depicts the projected Profit and Loss Account and Balance Sheet of the business organization.

Ø  On the basis of Capacity Utilization

A. Fixed Budget- while a budget is prepared through assuming a fixed percentage of capacity utilization, it is termed as a fixed budget.

B. Flexible Budgets- A flexible budget is a budget that is ready for dissimilar levels of capacity utilization. It can be termed as a series of fixed budgets ready for dissimilar levels of activity. For instance, a budget can be ready for capacity utilization levels of 50%, 60%, 70%, 80%, 90% and 100%.

Ø  On the basis of Time

A. Short Term- Any budget that is ready for a period up to one year is termed as Short Term Budget.

B. Medium Term- Budget ready for a period 1-3 years is Medium Term Budget.

C. Long Term- Any budget exceeding 3 years is termed as Long Term Budgets.

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