Task 3 Learning outcome 3

Topic 7: the definition of budget and the different types of budgets that could be used by different
.departments within organization and their usefulness for different departments

Definition of budget: A budget is the preparation of a detailed statement of expected financial

results for a given period of time in the future The budget plan gives details of expected revenues
and expenditures for a defined period in the future, a budget is a financial plan for a defined period,
often one year. It may also include planned sales volumes and revenues, resource quantities, costs
and expenses, assets, liabilities and cash flows. Companies, governments, families and other
organizations use it to express strategic plans of activities or events in measurable terms. is the sum
of money allocated for a particular purpose and the summary of intended expenditures along with
proposals for how to meet them. It may include a budget surplus, providing money for use at a
.future time, or a deficit in which expenses exceed income

:The different types of budgets

:Definition Operating Budget .1

A detailed projection of all estimated income and expenses based on forecasted sales revenue
during a given period (usually one year). It generally capital outlays are excluded because they are
long-term costs. Operating budget consists of all revenue and expenses over a period of time, an
operating budget is prepared in advance of a reporting period as a goal or plan that the business
.expects to achieve. It includes both revenue and expenses

Example of operating budget: Examples of commonly used operating budgets are sales,
production or manufacturing, labor, overhead, and administration. Once budgets are in place,
companies can use them to manage activities, compare how they are earning or spending against
.these budgets, and prepare for future business cycles
.The operating budget is used by the production budget and sales department

:Definition of financial budget .2

A financial budget in budgeting means predicting the income and expenses of the business on a
long-term and short-term basis, a financial budget is a very powerful tool to achieve the long-term
goals of any business. Accurate projections of cash flow help the business achieve its targets in the
.right way

:Example of financial budget

If the cash budget shows a decrease in net working capital, you may need to find some way of
.increasing available cash; by drawing on a line of credit, taking out a bank loan or by factoring
The financial budget is used warehousing department
Topic 8: the definition of budgetary control and the advantages and disadvantages
of different types of planning tools that Organization could be used for budgetary
control. You need to mention at least two tools

Definition of budgetary control: a system of controlling costs which includes the preparation of
budgets, coordinating the departments and establishing responsibilities, comparing actual
performance with the budgeted and acting upon results to achieve maximum profitability. The
process of determining various actual results with budgeted figures for the enterprise for the future
period and standards set then comparing the budgeted figures with the actual performance for
.calculating variances

:List of the planning tools

.Master budget .1
Fixed budget .2
Flexed budget .3

Definition of fixed budget: A fixed budget is a budget that does not change or flex for increases or
decreases in volume. Volume could be sales, units produced, or some other activity. A fixed budget
.is also known as a static budget

:The advantages of fixed budget

it ensures that your bills will be paid on time .1
.Easier to Track and Keep Your Budget .2

:The Disadvantages of fixed budget

.It does not take into account unpredictable life events .1
Static budgets also are not an accurate way to track expenses. In fact, all they do is provide a .2
.basic guideline that will be difficult to follow, should your income or expenses change

:Definition of Flexed budget .2

A flexible budget is a budget that adjusts or flexes with changes in volume or activity. The flexible
budget is more sophisticated and useful than a static budget. The static budget amounts do not
change. They remain unchanged from the amounts established at the time that the static budget was
.prepared and approved

:The advantages of Flexed budget

.Include the ability to cut or increase spending .1
Allowing you to increase spending to take advantage of opportunities presented by better-than- .2
.expected revenues

:The Disadvantages of Flexed budget

.Less Discipline the whole point of a flexible budget is to make it easier to adhere to .1
Less Stress, More Fun .2