Scribd
Upload
7 views

Budgetary Control

Accounting notes:1.budgetary control2.cost accounting concepts

Uploaded by

Rutuja Patil
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
7 views

Budgetary Control

Accounting notes:1.budgetary control2.cost accounting concepts

Uploaded by

Rutuja Patil
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 13

Budgetary Control

What are Budgets ???


• A Budget is a detailed plan of operations for future period.
• A pre-determined plan of action designed to guide current
operations and subsequent evaluation of performance.
• As per CIMA (England), a Budget is defined as “a financial
and/ or quantitative statement, prepared prior to a defined period of
time, of the policy to be pursued during that period for the purpose of
attaining a given objective.”
✓ Based on future plans
✓ Prepared in advance
✓ Expressed in monetary and/ or physical units
✓ Purpose is achievement of future objective
Budgetary Control : concept
• As per CIMA, Budgetary Control is ‘the establishment of budgets
relating to the responsibilities of executives to the requirements of the
policy, and continuous comparison of actual with budgeted results,
either to secure by individual action the objective of that policy or to
provide basis for its revision.’
✓ Formation of budgets
✓ Collection of actual performance
✓ Continuous comparison of actuals with budgets to measure
performance variations
✓ Revision of budgets, if required.
✓ Achievement of objectives
Budgetary Control : advantages
Important management tool for comparing current actual
performance with the pre-planned performance.
Brings efficiency, economy and control in a business
Establishes divisional and departmental responsibilities, thus
it prevents “buck-passing” when goals are not met.
Coordinates the various departments of an enterprise. This
creates teamwork and harmony in the organization.
Acts as a safety signal for the management in cases of early
deviations/ contingencies.
Instills ‘management by exception’, only abnormalities reported.
Effective employment and utilization of various resources.
Budgetary Control : limitations
Difficulty in future estimations
Resistance to change, continuous
comparison, leading to non-
cooperation – ‘human nature’
Not suitable in a constantly
changing environment, may not
provide a realistic picture
Inappropriate during different
phases/ cycles of a business for
e.g. growth, maturity, recession etc
Immoral use of budgets by
superiors to exploit/ harass their
assistants.
Budgetary Control : installation
❖ Determination of objectives
❖ Define Responsibility
❑ Budget Controller (CEO, Director etc.)
❑ Budget Committee (Heads of Dept.)
❖ Determination of Key Factor (capacity, demand)
❖ Making Forecasts (future estimates, trends etc.)
❖ Preparation of Budgets from forecasts
❖ Collection of actual data/ performance
❖ Comparisons and corrective action, if required.
Classification of Budgets
▪ According to Time
o Long-term budget
o Medium/ short term budget
▪ According to Function
o Sales budget
o Production budget
o Purchases budget
o Capital expenditure budget
o Cash budget

▪ According to Nature
o Fixed budget
o Flexible budget
Sales Budget
o First/ fundamental budget
o Base for all other budgets
o Accurate sales forecast reqd.
o Product/ Unit / Area-wise
o Plant capacity
o Past sales figures and trends
o Marketing dept. estimates
o Orders on hand
o Advertising and promotions
o Trade prospect, competition
o Seasonal fluctuations
Production Budget
• Based on sales budget
• Restricted by plant capacity
• Driven by production
process
• Product-wise & unit-wise
• What / When / How and
Where ‘to produce’
• Study of inventory policies
• Availability of material and
labour
• Quality standards
Purchases Budget
Based on production budget
Driven by inventory policies
Material requirements (direct
and consumables)
Quality of prime importance
Availability is a crucial factor
Cost element
Balancing quality, availability
and cost at the same time
Ensure that there is neither
over-stocking nor shortages.
Cash Budget
# Summary of cash inflows and
cash outflows
# Determining future cash
requirements
# Planning for financing the
requirements i.e. cash sources
# Continuous control on liquidity
# Based on sales budget and
credit policy of the company
# Based on production costs,
purchase costs and credit recd.
# Estimate other expenditures
Fixed vis-à-vis Flexible Budget
Fixed Budget Flexible Budget
a) Fixedbudget does not change a) Flexiblebudget changes as per
with actual volume of output. the level of output.
b) It
operates at only one level of b) Itconsists of various budgets
activity under one set of for all levels of activities under
conditions. different conditions.
c) Allcosts (fixed, variable, semi) c) Variance analysis is useful since
are related to only one level of costs are compared for different
activity, variance analysis NA. levels of activities.
d) Not useful for fixing selling d) Usefulfor fixing selling prices
prices and tendering quotations. and tendering quotations.
e) Unrealistic yardstick e) Practical applications
Zero Base Budgeting (ZBB)
Developed in USA by Peter Pyhrr and implemented by US
President Jimmy Carter.
Limitations of traditional budgeting such as dependence on
past trends, inflation of budgets, carry forward mistakes.
ZBB suggests new budgets must be prepared from scratch.
ZBB propagates that nothing should be allowed simply
because it was permitted in the past.
All operations, programs and activities must be rationalized,
analyzed, justified and then included in the budget.
ZBB ensures that only necessary projects are considered.
It identifies wasteful expenses and hence ensures efficiency.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy