Functional/departmental budgets include budgets for sales, production purchases and labour. A departmental/functional budget is a budget of income and/or expenditure applicable to a particular function frequently including sales budget, production cost budget (based on budgeted production, efficiency and utilisation), purchasing budget, human resources budget, marketing budget and research and development budget'. CIMA Official Terminology Having seen the theory of budget preparation, let us look at functional (or departmental) budget preparation, which are best explained by means of an example. 4.1 Example: preparing a materials purchases budget b6 ECO Co manufactures two products, S and T, which use the same raw materials, D and E. One unit of S uses 3 litres of D and 4 kilograms of E. One unit of T uses 5 litres of D and 2 kilograms of E. A litre of Dis expected to cost $3 and a kilogram of E $7. Budgeted sales for 20X2 are 8,000 units of S and 6,000 units of T, finished goods in inventory a y at 1 January 20x2 1.500 units of S and 300 units of T, and the company plans to hold inventories of 600 units of each product at 31 December 20X2 Inventories of raw material are 6.000 litres of D and 2,800 kilograms of E at 1 January and the company plans to hold 5,000 litres and 3,500 kilograrns respectively at 31 December 20X2. The warehouse and stores managers have suggested that a provision should be made for damages and deterioration of items held in store, as follows. Products: loss of 50 units Material D: loss of 500 litres Product T: loss of 100 units Material E loss of 200 kilograms Required Prepare a material purchases budget for the year 20x2. 2 are