Different types of budgets help the organisation monitor and control different aspects of the business. It helps to coordinate allocations of resources, expenses monitored and rates of production forecasted for future growth. The main types of budgets in an organisation are:
Sales/Revenue budget- It shows the amount of money that flows into the business at any point in time, then number of units (products or services) that would be sold and at what price they would be sold at. This information could help the organisation e.g. in hiring more staff to handle the expected rise in sales.
Production budget- It shows the current levels of stock and rate of production. It would also take note in the seasonal fluctuations in the sales budget to meet current demand. This could help the organisation maximise their storage and logistics and lower costs associated in these areas.
Cash budgets- This budget monitors the cash flows in the business, and the cash reserves. The main reason for monitoring this budget could be to make sure that the organisation is always at a position to pay its current liabilities and ensure there is no shortage of cash for operational expenses and day to day running of the organisation.
Purchases budget- A purchases budget records and controls the raw materials the organisation buys. It takes into account the production budget and matches the raw materials that would be required to keep inline with the rate of production.
Expenses budget- An expense budget is sub divied into 3 boroad catogeries,i.e.:Marketing,Sales and Financial. As sales grow or there is a new marketing campaign this is the budget that would monitor and controll the expenses that relates to these activities.This would simplify the cost ratio analisis.
Capital budget- A capital budget would accommodate the expense in buying a captal intensive asset, and example of an item that belongs to the capital budget could be a new delivert truck or an additional wharehouse.
