Budgetary Control: Presented by

BUDGETARY CONTROL
PRESENTED BY:
GROUP 12:
YAKSHI GARG
RATIKA JAIN
RAHUL GIRI
YOGESH SOLANKI
ANURAG MEHTA
BUDGET
A budget is a financial and/or quantitative
statement, prepared pror to a defined period of
time,of the policy to be pursued that period for
the purpose of attaining given objectives
Uses of budgeting
Uses of budget
 to establish priorities
 To set target in numerical terms
 To allocate resource
 To improve efficiency
 To forecast outcomes
 To control income and expenditure
Benefits of budgeting
 Strategic planning can be more easily linked to
management decisions
 Standards can be set to aid performance and
evaluation
 Budgets encourage co-operation and co-ordination
 Employees are motivated to achieve objectives
 Provides a basis for evaluation – a yardstick by which
performance can be judged
Limitations of budget
 Budgets are only as good as the data being used
 Budgets can lead to inflexibility
 Budgets need to be changed as circumstances change
 Budgeting is a time consuming process
 Budget can result in short term decision to keep within the b
rather than right long term decision which exceeds the budget
 Manager can become too preoccupied with setting and
reviewing budgets and forgetting to focus on the real issues of
winning customers
For effective running of a business, management must
know:
• where it intends to go i.e. organizational objectives
• how it intends to accomplish its objective i.e.
plans
• whether individual plans fit in the overall
organizational objective. i.e. coordination
• whether operations conform to the plan of
operations relating to that period i.e. control
“Budgetary control is the device that a company
uses for all these purposes
WHAT IS BUDGETARY
COTROL?
Budgetary control is the use of the comprehensive

system of budgeting to aid management in carrying
out its functions like planning, coordination and
control. OR
It can be said that – it’s a use of budgets to control
operations. Compare actual results with the planned
objectives.
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Objectives of budgetary control
planning communication
coordination
motivation performance control

evaluation
Budgetary control
This system involves:
• Division of organization on functional basis into different
sections known as a budget centre.
• Preparation of separate budgets for each “budget centre”.
• Consolidation of all functional budgets to present overall

organizational objectives during the forthcoming budget
period.
• Comparison of actual level of performance against

budgets.
Reporting the variances with proper analysis to provide
basis for future course of action.
CLASSIFICATION OF BUDGETS
ACCORDING TO ACCORDING TO ACCORDING TO

TIME FUNCTION FLEXIBILITY
1. Long term budget 1. Sales budget 1. Fixed budget

2. Short term budget 2. Production budget 2. Flexible
budget
3. Current budget 3. Cost of Production budget
4. Rolling budget 4. Purchase budget
5. Personnel budget
6. R & D budget
7. Capital Expenditure budget
8. Cash budget
9. Master budget
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1. SALES BUDGET:
Sales budget is the most important budget based on which all the
other budgets are built up. This budget is a forecast of quantities
and values of sales to be achieved in a budget period.
2. PRODUCTION BUDGET:
Production budget involves planning the level of production which
in turn involves the answer to the following questions:
a. What is to be produced?
b. When is it to be produced?
c. How is it to be produced? 12
3. COST OF PRODUCTION BUDGET:
This budget is an estimate of cost of output planned for a
budget period and may be classified into –
• Material Cost Budget
• Labour Cost Budget
• Overhead Cost Budget
4. PURCHASE BUDGET:
This budget provides information about the materials to be
acquired from the market during the budget period.
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5. PERSONNEL BUDGET:
This budget gives an estimate of the requirements of
direct labour essential to meet the production target.
This budget may be classified into –
a. Labour requirement budget
b. Labour recruitment budget
6. RESEARCH AND DEVELOPMENT BUDGET:
This budget provides an estimate of expenditure to be
incurred on R & D during the budget period.
A R&D budget is prepared taking into consideration the
research projects in hand and new R & D projects to be
taken up.
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7. CAPITAL EXPENDITURE BUDGET:
This is an important budget providing for acquisition of
assets necessitated by the following factors:
a. Replacement of existing assets.
b. Purchase of additional assets to meet increased production
c. Installation of improved type of machinery to reduce
costs.
8. CASH BUDGET:
This budget gives an estimate of the anticipated receipts and
payments of cash during the budget period.
Cash budget makes the provision for minimum cash
balance to be maintained at all times.
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9. MASTER BUDGET:
CIMA defines this budget as “ The summary budget incorporating
its component functional budget and which is finally approved,
adopted and employed”.
Thus master budget is a summary of all functional budgets in
capsule form available in one report.
10. FIXED BUDGET:
This is defined as a budget which is designed to remain
unchanged irrespective of the volume of output or turnover
attained.
This budget will, therefore, be useful only when the actual level of
activity corresponds to the budgeted level of activity.
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11. FLEXIBLE BUDGET:
CIMA defines this budget as one “ which, by recognising the
difference in behaviour between fixed and variable costs in
relation to fluctuations in output, turnover or other variable
factors such as number of employees, is designed to change
appropriately with such fluctuations”.
12. PERFORMANCE BUDGETING:

These days budgets are established in such a way so that each
item of expenditure is related to specific responsibility centre
and is closely linked with the performance of that standard.
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ZERO BASE BUDGETING:
The zero base budgeting is not based on the incremental
approach and previous figures are not adopted as the base.
Zero is taken as the base and a budget is developed on the

basis of likely activities for the future period.
A unique feature of ZBB is that it tries to help

management answer the question, “Suppose we are to start
our business from scratch, on what activities would we
spent out money and to what activities would we give the
highest priority?”
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RESPONSIBILITY ACCOUNTING:
Responsibility accounting fixes responsibility for cost control
purposes by establishing responsibility centres namely –
a. Cost centre
b. Profit centre
c. Investment centre
Principles of responsibility accounting are as follows:
1. Fixation of targets for each responsibility centre
2. Actual performance is compared with the target
3. The variances therein are analyzed so as to fix the
responsibility of centres.
4. Taking corrective action.
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Responsibility for controlling cost
CONCLUSION:
Ψ Preparation of budgets is the first step in the budgetary

control system.
Ψ Implementation of budgets is the second phase.
Ψ But preparation and implementation of budgets alone
will not achieve much unless a comparison is made
regularly between the actual performance and the
budgeted performance.
Ψ Continuous and proper reporting makes this possible.
Ψ To ensure the success of budgetary control system,
proper follow up action has to be taken immediately for the
reports submitted.
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BUDGETARY CONTROL

Budgetary control is the use of the comprehensive

motivation performance control

• Preparation of separate budgets for each “budget centre”.

• Consolidation of all functional budgets to present overall

• Comparison of actual level of performance against

ACCORDING TO ACCORDING TO ACCORDING TO

1. Long term budget 1. Sales budget 1. Fixed budget

12. PERFORMANCE BUDGETING:

Zero is taken as the base and a budget is developed on the

A unique feature of ZBB is that it tries to help

Ψ Preparation of budgets is the first step in the budgetary

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