Types of Budget

Budget is based on efficiency and among it, the first one is the fixed budget in accounting. Fixed budget is one, which is desired for a specific plant output level and or not adjusted to the level of activities attained at the time comparison between the budgeted and actual cost. A fixed budget can be established only for a small period when the actual output is not anticipated to differ much from the budgeted output. However, a fixed budget is liable to revision if due to business conditions undergoing basic change or due to other reasons. The actual operation differs widely from the plan in the fixed budget. These budgets are most suited for fixed expenses but they have only a limited application and is ineffective as a tool for cost control so under fixed budget one thing is very certain that they don’t change with the change in the level of activity. They remain fixed in nature and they are suitable for the fixed expenses and limitation of a fixed budget is that they are not effective tools of control. Now moving ahead to the flexible budget. A budget which by recognizing different cost behaviour pattern is designed to change as the volume of output change. It is a budget prepared in a manner to give the budgeted cost for any level of activity. It is a budget which by recognizing the difference between fixed, semi-variable and variable cost is designed to change the activity attained. So we can say that under a flexible budget, the budget is going to change as the level of activity changes. By level of activity, we mean that the production units if our level of activity was to prepare the 10,000 units, under fixed budgets the fixed expenses would remain the same. However under a flexible budget, if the product has enhanced from 10,000 unit to 20,000 unit the cost associated with it will change and the cost behaviour pattern has to be analyzed. The variable expenses are going to change with the level of activities. Semi variable expenses have to be segregated on a suitable basis. Fixed expenses are to be analyzed up to what level they remain fixed and what changes are to be made as and when the level of activity changes after a certain point of time. So these exercises have to be done under the flexible budgets and they are the most important budget under the budgetary control to prepare and to analyze cost at a different level of activities. Now based on scope we are having the master budgets. The master budget is a consolidated summary of various functional budgets. A master budget is the summary budget in cooperating its components functional budgets and which is finally approved adopted and employed. It consists individuality of the budget profits and loss account budgeted balance sheet and budgeted fund flow statement. It is being prepared by budget committee coordinating with the functional budget and becomes the targets of the company during the budgeted period and it is finally approved.