All questions of Budgets for Grade 12 Exam

The main purpose of a functional budget in a business organization is to control short-term expenditures within specific departments. A functional budget is a comprehensive plan that outlines the projected income and expenses for each department or functional area within a company. It allows management to allocate resources effectively and monitor spending to ensure that it aligns with the organization's goals and objectives.

Let's break down the main purpose of a functional budget in more detail:

1. Controlling Expenditures:
- A functional budget helps management control short-term expenditures by setting spending limits for each department. It provides a framework for managers to plan and allocate resources based on their department's needs and priorities.
- By having a budget in place, managers are able to track and monitor expenses, ensuring that they stay within the approved limits. This helps prevent overspending and promotes better financial discipline within the organization.

2. Resource Allocation:
- A functional budget allows management to allocate resources effectively across different departments. It helps prioritize spending by identifying areas that require more investment and those that can be reduced.
- By understanding the financial needs of each department, management can make informed decisions about resource allocation, ensuring that resources are distributed in a way that maximizes efficiency and supports the overall strategic objectives of the organization.

3. Performance Evaluation:
- A functional budget serves as a benchmark for evaluating departmental performance. By comparing actual spending against the budgeted amounts, management can assess how well departments are managing their resources.
- Any significant variances between actual and budgeted amounts can be investigated, and corrective actions can be taken if necessary. This allows management to identify areas of improvement and make adjustments to ensure that the organization stays on track towards its financial goals.

In conclusion, a functional budget is a vital tool for controlling short-term expenditures within specific departments in a business organization. It helps management allocate resources effectively, monitor spending, and evaluate departmental performance. By providing a clear financial plan, it enables the organization to achieve its objectives and ensure financial stability.

The Works Manager is responsible for preparing the labor and personnel budget, which includes estimates of the direct labor required to meet production targets and other personnel-related details.

The administration expenses budget covers expenses incurred in framing policies, directing the organization, and controlling business operations. It includes expenses related to the central office and management salaries.

The sales department is typically responsible for preparing the sales budget. This budget forecasts the quantities and values of sales to be achieved in a budget period and serves as the starting point for other budgets in the organization.

The cost of production budget is prepared to estimate the total cost of production planned for a budget period. It includes not only raw materials and labor costs but also overhead expenses.

Research and development budgets are typically established on a long-term basis (e.g., 5 to 10 years) because research and development projects can span multiple years and require continuous investment. They focus on long-term innovation and development efforts.

The production budget includes the total output of the organization broken down into estimates of output for each type of product, along with a scheduling of operations to be performed. It also includes a forecast of the closing finished stock to be maintained.

The capital expenditure budget is prepared to estimate the amount of capital needed for acquiring fixed assets required to fulfill production requirements. It focuses on the acquisition of assets like plant and equipment.

Functional budgets are primarily used to control spending and manage the growth of a business by focusing on short-term expenditures within a specific department or function. While they provide valuable financial information, their main goal is to ensure that spending within a particular area is managed effectively.

The cash budget is divided into two parts: one estimating cash receipts (e.g., cash sales, credit collections) and the other estimating cash payments (e.g., purchases, wages, expenses). It also provides for a minimum cash balance to ensure liquidity.