Functional Budget Definition:
A budget of income and/or expenditure applicable to a specific function. A function may refer to a process or a department. Functional budgets frequently include the following: production cost budget (based on a forecast of production and plant utilization); marketing cost budget; sales budget; personnel budget; purchasing budget; and research and development budget.
A functional budget is the budget that is achievable and is related to a specific unit or process or function or department of the organisation. It is a group of related activities aimed at accomplishing a major service or program for which a unit of government is responsible.
A functional budget is prepare for a process of function.
By functional budgets, we mean budgets that relate to an area of an organisation that produces, or does, something. This is not necessarily to say that we are talking about manufacturing alone. We can have functional budgets in manufacturing, in commerce, in government. We can have functional budgeting in non profit making organisations too.
The key principles of functional budget preparation are
> Understand the function, process or system you are budgeting
> Find all of the data you need
> Separate the values from the volumes
> Check for interrelationships, understand and use them
> Check your arithmetic once you have prepared each budget
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