Project Summary

Types of Budget

Name

Institution

Types of Budgets

Budget is a financial plan estimated for a given period of time usually a year, the act of preparing it is called budgeting while the way to use it to control an institution or organization is called budget control. There are various types of budgets and some were covered under review of financial statement of FORD MOTORS OK manufacturing company. To start with, master budget; is the sum of lower-level budgets produced by various functional area within the company including the financial plan, cash forecasting and also financial statement (Shim, Siegel, & Shim, 2013). It plays an important role in the company like assisting in control of liquidity within an organization since it involves cash flows and cash forecasting receipts that controls the income and expenses to avoid shortages of cash to pay bills and no excess use of cash in unproductive things and through this it improve the profitability rate within the company (Finney, 1993). It is also profitable in that it tends to build a group of connected budgets which gives a true picture of the company within a given period.

Sales budget is an estimate of the products that a company expects to trade at a given price per unit. It is important because it derives other budgets. It assists in profitability of the company because it helps in planning for appropriate market, gives the market structure and trends within the area chosen through forecasting. Production budget is important in that it assist in estimation of the units of products to be produced based on the sales and finished goods forecasted. It is profitable since it contains all the future plans of manufacturing operations with aim of utilizing manufacturing methods and facilities (Shim, Siegel, & Shim, 2013). Direct material budget assist in estimation of raw materials required to achieve desired level of production. It improves profitability in that desired level of output per unit is achieved hence customers desires fulfilled. Manufacturing overheads helps in estimation of all production costs other than direct material and labor important in achieving desired production levels and is profitable since liquidity within the company can be controlled (Finney, 1993). Sells and administrative budget helps in estimation of all operation costs rather than production. It is profitable in that it shows revenue and expenses incurred in each operation within the company.

In conclusion, budgeting is an important tool in every organization.

References

Finney, R. G. (1993). Basics of budgeting. New York: American Management Association

Shim, A. I., Siegel, J. G., & Shim, J. K. (2013). Budgeting basics and beyond. Hoboken, N.J: Wiley