There are two types of production budgets â€“ find out which one is best for your business
43984, 17 Sep. 2014
If your company is all about producing products, a production budget will be an essential part of your financial and account management.
It will help you workout the quantity of the product you need to manufacture and give you greater control so you can plan better for production.
But there are two types of production budgets you can use to do this. Keep reading to find out what they are so you can choose the one that’s best for your business.
Here are the two types of production budgets
#1: Projected production budget
A projected budget is the estimated or predetermined cost of performing an operation or producing goods or services.
Employees present this budget to management for approval. Once you approve it, employees use it when they buy material.
#2: Post-production budget
This budget tracks how much material you’ve used since buying it. It raises red-flags if there are any issues like material shortfall or over purchasing during the last business cycle.
So which production budget is best for your business?
If management gives the final approval before purchasing goes ahead, then the projected production budget is best for your business. This is because it’s less complicated and it saves time.
Remember, management approval for all purchasing decisions is an important internal control.
The post-production budget is useful after business cycles. You can use it to compare it with the initial budget. Overall, it isn’t as efficient as the projected budget and becomes redundant if you have controls in place to manage your output.
Knowing about the two types of production budgets will help ensure you plan better for production.
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