What is a functional budget?

• A. A budget of income and/or expenditure application to a particular function of an organisation
• B. A forecast of sales for the entire company
• C. The cash holdings at year-end
• D. A budget that covers only capital expenditures

Answer: (A)

A functional budget is a budget that applies to a specific function within an organization, detailing the income and/or expenditure targets for that function. It translates the broader objectives into a focused financial plan for areas like marketing, production, or distribution, guiding resource use and cost control in that function. For example, a production function budget would estimate materials, labour, and overhead costs for manufacturing, while a marketing function budget would outline planned advertising and promotion spend and its expected impact. This differs from budgets that cover the whole company’s cash flows (cash budget), long-term asset investments (capital expenditure budget), or a company-wide sales forecast, which isn’t tied to a single function.