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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