Types of Budgets

What are Budgets

The budget are basically future estimates of revenue or cost. budget is play very important rule in directing organization activity to achieve long term goals. Budget also serve the purpose of controlling the organization resources . Budgets can also be used for the purpose of performance measure of different manager and center.

Types of budgets

There are mainly the following types of budgets commonly prepared in the organization.

1. Fixed budget
2. Flexible budget
3. Zero based budget

1. Fixed Budget

A fixed budget does not change with level of activity. for example a construction manager has prepared a fixed budget for the construction of a bridge and site manager require to complete the construction work within this budget.

2. Flexible Budget

A flexible budget changes with level of activity i.e ( number of unit produced). for example for 10,000 unit the production cost was 18,000 and for 12,000 unit production cost was 20,000.

3. Zero Based Budget

Zero based budget are prepared from the scratch. This concept try to eliminate the wrong projection and encourages to prepare the budget on facts and not merely the changing the number in excel sheet. The biggest limitation of Zero based budget is time consuming.