INTRODUCTION:

In any Organization, departments prepare budgets and estimates for the smooth flow of business activity which is inevitable. Budgets are formal quantitative statements of the resources set aside for carrying out planned activities over given periods of time. As much, they are widely used means for planning and controlling activities at every level of the organization. There are a number of reasons for their wide usage. In a simple term budget refers to expenditure plan. In a normal parlance, there are two kinds of budgets. Namely, operating budgets and financial budgets. The operating budgets point out the goods and services the organization expects to devour in the budget period. They usually list both physical quantities (such as barrels of oil) and cost figures. The financial budget spell out in detail the money the organization proposes to spend in the same period and where that money will come from. These types of budgets make up the firm’s overall budgetary plan. Flexibility in budgeting is necessary because of the cyclicality of the market and to control the cost.

Operating Budgets:

Operating budgets are classified as expenses, revenue, and profit budgets.

Expense Budgets: There are two types of expense budgets, one for each of the two types of expenses centers – engineered cost budgets and discretionary cost budgets.

Engineered cost budgets are typically used in manufacturing plants but can be used by any organizational unit in which output can be accurately measured. These budgets usually describe the material and labor costs involved in each production item as well as the estimated overheads costs. Hewlett Packard, for example, has an annual budget that describes the labor, material, and overhead expenses involved in manufacturing its computer peripherals (printers, plotters, and boards). Such an engineered cost budget is designed to measure efficiency. Exceeding the budget means that operating costs were higher than they should have been.

Discretionary cost budgets are typically used for expenses centers — administrative, legal, accounting, research, and other such departments in which output cannot be accurately measured. Discretionary cost budgets are not used to assess efficiency because performance standards for discretionary expenses are difficult to devise. For example, if Procter & Gamble’s research and development department exceeds its budget, it will often be difficult for managers to determine how that department’s work could have been performed more efficiently.

Revenue Budgets: Revenue budgets are meant to measure marketing and sales effectiveness. They consist of the expected quantity of sales multiplied by the expected unit selling price of each product. The revenue budget is the most critical part of a profit budget, yet it is also one of the most uncertain because it is based on projected future sales. Companies with a large volume of back orders or companies whose sales volume is limited only by their productive capacity can make firmer revenue forecasts than can companies that must reckon with the fluctuations of an unstable or unpredictable market. However, marketing and sales managers of even the latter type of company can control the quality and quantity of their advertising, service, personnel training, and other factors that affect sales. This control gives them some influence over sales volume and frequently enables them to make reasonably accurate sales estimates. Deere also influences sales through its control promotion and dealer incentives.

Profit Budgets: A profit budget combines cost and revenue budgets in one statement. It is used by managers who have responsibility for both the expenses and the revenues of their units. Such managers head an entire division or company, like Corning Inc.’s technical products division. Profit budgets, sometimes called master budgets, consist of a set of projected financial statements and schedules for the coming year. Thus, they serve as annual profit plans.

Budgeting procedure
The budgeting process typically begins when managers receive top management’s economic forecasts and sales and profit objectives for the coming year, along with a timetable stating when budgets must be completed.      The forecasts and objectives provided by top management correspond to guidelines within which other managers’ budgets will be developed.

Dr.R.SRINIVASAN is a Post graduate in commerce and corporate secretary ship . He received his doctoral degreein the Managementfaculty from Alagappa University in 1997. He is now Working as an ASSOCIATE PROFESSORin Post graduate and Research Department of Corporate Secretaryship at Bharathidasan Government College for Women (Autonomous), Pondicherry University, Puducherry.He currently teaches Accounting ,financial management and Research Methodology Subjects. Before Joining BGCW, he was teaching in SNR College, Coimbatore, Sindhi college, Chennai& T.S.Narayanasamy College, Chennai for eight years. He was with the industry for a short term at Salzar Electronics Pvt. Ltd, Coimbatore. He has about 20 years of teaching experience and having research experience of 15 years. His interests are in Accounting and finance, Capital Market, Quantitative Methods. He underwent the Faculty Development Programme at Indian Institute of Management Ahmedabad during 2000-01. He has presented 20 papers in national and international conferences and has published twenty papers in the areas of Finance and Human resource Management in National Journals. Co-authored a book titled, ‘Investors Protection, published by Raj Publications, New Delhi . Delivered lectures in contemporary finance topics at Pondicherry University. He is involved in consultancy projects for Godrej Saralee, Chennai in the areas of Statistical Applications.  Supervised a number of research projects in the area of corporate finance and Human Resource Management. He is the Board of examiner in corporate Secretaryship and Management for the past two decades.   UGCSanctioned  funded major project in Management (Finance area) for two years (2010-2012).

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