Describe at least four of the different types of budgets that are frequently used.

Question

What will be an ideal response?

Answer 1

Four budgets that are frequently used are:

•    Cost budget. The cost budget is used for areas of the organization that incur expenses but no revenue, such as human resources and other support departments. Cost budgets may also be included in the production budget. Costs may be fixed (independent of the immediate level of activity), like rent, or variable (rising or falling with the level of activity), like raw materials.
•    Cash budget. The cash budget is essential to every business. It should be prepared after all other budget estimates are completed. The cash budget shows the anticipated receipts and expenditures, the amount of working capital available, the extent to which outside financing may be required, and the periods and amounts of cash available.
•    Capital budget. The capital budget is used for the cost of fixed assets like plants and equipment. Such costs are usually treated not as regular expenses but as investments because of their long-term nature and importance to the organization's productivity.
•    Master budget. The master budget includes all the major activities of the business. It brings together and coordinates all the activities of the other budgets. Think of it as a "budget of budgets."