Operating budget consists of two parts, called as ________ budget and ________ budget

Correct option is C

The Operating Budget is generally composed of two key parts: the Programme Budget and the Responsibility Budget. These two components allow an organization to plan both what it wants to achieve and who is responsible for achieving it.

• A Programme Budget focuses on the costs and revenues associated with specific activities or programs. It links expenditures to objectives or services delivered, helping in performance evaluation.

• A Responsibility Budget, on the other hand, assigns revenue and cost responsibilities to different managers or departments, based on their control and accountability areas. This fosters internal control and managerial accountability.

Together, they ensure that both strategic goals and individual department performance are aligned with the financial plan, making the operating budget an effective tool for planning and control.

Information Booster:

• Programme Budget is based on organizational goals and is often used in public sector or not-for-profit budgeting systems.

• It ties financial resources to specific activities, such as marketing, R&D, or training.

• Responsibility Budget helps assign costs/revenues to departments or individuals, making managers accountable.

• Both budgets improve planning accuracy and internal control.

• These components are aligned with performance budgeting and management by objectives (MBO).

• Effective use of these budgets facilitates variance analysis and cost control.

Additional Knowledge:

• (a) Cash, Expense:
  These are elements of financial budgets, not operating budgets. Cash budgeting relates to cash inflows/outflows, while expense budgeting is just a portion of the operating budget.

• (b) Flexible, Master:
  A flexible budget is adjusted for varying activity levels, and a master budget is a comprehensive consolidation of all functional budgets, including both operating and financial components. Thus, this pairing doesn't define the two core parts of an operating budget.

• (d) Master, Utilisation:
  This is incorrect terminology. Master budget is the final consolidated document and utilisation budget is not a standard term in budgeting frameworks.