Non-Production Budgets

  1. Selling and Distribution Cost Budget

It is the forecast of all costs incurred in selling and distributing the company’s product during the budget period. It is closely concerned with the sales budget in that it is mainly based on the volume of sales projected for the period.

Expenses included are:

  • Selling office costs
  • Salesman salaries and commission
  • Advertising expenses
  1. Administration Costs Budget

It represents the costs of all administration expenses. Each department or budget centre will be responsible for the preparation of its own budget. Management, Secretarial, Accounting and Administration costs which cannot be directly related to the production are included here.

The budget will be mainly incremental i.e. previous year’s figure will tend to apply for its next budget with an allowance for inflation.

  1. Research and Development Cost Budget

These are costs, which are discretional in nature i.e. they are determined on need basis by the managers concerned. Research cost is the cost of original investigation undertaken in order to gain new scientific or technical knowledge and directed towards a specific practical aim objective.

Development cost is the cost of using scientific or technical knowledge in order to produce new or substantially improved materials, devices, products, processes systems or services prior to the commencement of commercial production.

  1. Capital expenditure Budget

It represents the expenditure on all fixed assets during the budget period. Addition intended to benefit future accounting periods, or expenditure which increases the production capacity, efficiency lifespan or economy of an existing fixed assets are also incorporated.

  1. Cash budget

It records the cash inflows and outflows, which are expected to take place in respect of each functional budget. It may be prepared for a period span of one week, month or quarter of the budget period. It has the following benefits/advantages:

  • It ensures that sufficient cash is available when required.
  • It shows whether capital expenditure projects can be financed internally.
  • It indicates the cash needed for current operating activities.
  • It indicates the effect the position of each seasonal requirements, large stocks, unusual receipts and laxity in collecting account receivable.
  • It indicates the availability of cash for taking advantage of discounts.
  • It reveals the availability of excess cash so that short-term investments may be considered.
  • It serves as a basis for evaluating the actual cash management performance of responsible managers.

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