The profit budget is arguably the most important.
There are two basic approaches to budgeting in a large organization, both having advantages and disadvantages..
1. The "bottom up" method.
- Proposals are taken from the lower management levels.
- These are collated into an overall budget that may or may not be acceptable.
- If it is not, then top management calls for revisions.
- Top management issues budget targets.
- Lower levels of management must then submit proposals that achieve these targets.
Note the following points:
- Most budgets are for a year but this is not a requirement. they can be for six months or for any other useful period.
- Most budget gives monthly figures, which is the most common division, but again this is not fixed. the divisions can be weekly, quarterly or some other period.
- A summary budget is useful for a large organization. The budgets leading up to these summarized figures will be more detailed.
- Various subsidiary budgets and calculations feed figures through to the summary budget.