BUDGETARY CONTROL MADE BY MUSKAN 64 SHANKHNI BHARDWAJ

BUDGETARY CONTROL MADE BY: - MUSKAN (64) SHANKHNI BHARDWAJ (80)

BUDGET , BUDGETING AND BUDGETARY CONTROL �BUDGET: Budget is financial and quantitative statement prepared and approved prior to a defined period, of the policy to be pursued during that period for the purpose of attaining a given objective. �BUDGETING : Budgeting is an act of preparing various budgets. It is an essential tool frequently used by business executives for the purpose of planning and control.

BUDGETARY CONTROL : Budgetary control is a system which uses budgets as a means of planning and control. The entire exercise starts with the setting up of budgets and ends with the taking of an action in case the actual figures differs from the budgeted figures. It determines the objectives to be achieved during the budget period and the policies that might be adopted for achievement of these objectives. It is a powerful instrument used by business concerns for the control of their expenditures.

OBJECTIVES OF BUDGETATRY CONTROL PLANNING CONTROL COORDINATION REPORTING AND EVALUATING

ESSENTIALS OF EFFECTIVE BUDGETARY CONTROL � Support of top management. � Clearly defined objectives. � Clearly defined organisation. � Adequate accounting. � Participation by responsible executives. � Logical sequence in the budget preparation.

� Constant vigilance. � Budget education. � Reasonable flexibility. � Communicating the budget. � Cost of operation.

STEPS IN BUDGETARY CONTROL � Determination of objectives. � Location of the budget key factor. � Establishment of budget centres. � Preparation of an organisation chart. � Introduction of adequate accounting records. � Appointment of budget controller. � Formation budget committee.

� Preparation of budget manual. � Fixation of budget period. � Preparation and approval of budget plans. � Implementing the budget plans.

BUDGET MANUAL � Budget manual is a document which contains a detailed procedure for the operation of a budgetary control system in an organisation. It is defined by CIMA London as “a document which sets out the responsibility of the persons engaged in the routine of and the forms and records required for budgetary control. ”

CONTENTS 1) 2) 3) 4) BUDGET MANUAL USUALLY INCLUDES THE FOLLOWING MATTERS: A brief explanation of the principles of budgetary control system and its objectives. Procedure to be adopted in operating the system. Forms to be used in budget preparation. Duties and responsibilities of operational executives , budget committee and budget controller.

5) Budget calendar. 6) Method of accounting to be adopted. 7) Accounting codes and classifications used by the company. 8) Budget periods and follow up procedures.

ADVANTAGES OF BUDGET MANUAL � It defines duties and responsibilities of various persons engaged in budgetary control. � It sets out the procedure for budget making. � It lays down the different forms and records to be used in budget preparation. � Reliance on monetary will be eliminated as every thing is in writing.

ZERO BASED BUDGETING In zero based budgeting every year is taken as a new year. Budget figures are developed with zero as base , which means that a budget will be prepared as if it is being prepared for a new company for the last time. Zero based budgeting is based upon the idea that every rupee of expenditure requires justification.

FEATURES OF ZERO BASED BUDGETING � It is approach to budgeting which starts with a base zero so that the budget allocations for the future can be justified afresh. � All activities are re-valued each time a budget is formulated. � In ZBB , the start is from zero and not on the basis of past figures adjusted for the inflation and other conditions. � The focus is not simply on ‘how much’ a unit will spend but ‘why ‘ it need to spend.

� Choices are made on the basis of what each unit can offer for a specific cost. � Individual unit objects are linked to cooperate targets. � Alternative ways are considered. � Participation of all levels is essentials.

ADVANTAGE OF ZERO BASED BUDGETING � It provides a systematic way to evaluate different programmes and activities. � It help in identifying and controlling areas of wasteful expenditure � It promotes operational efficiency � It results in efficient allocation of resources as it is based on need and benefits rather than history.

� It encourages mangers to look for alternative and find the cost effectives way of doing a job. � It help the budget setters to examine every item and to delete and eliminate inflated budgets. � It help in reducing the cost of production.

TYPES OF BUDGETS ON THE BASIS OF COVERAGE 1)FUNCTIONAL BUDGETS 2)MASTER BUDGETS ON THE BASIS OF LEVEL OF ACTIVITIES 1)FIXED BUDGETS 2)FLEXIBLE BUDGETS ON THE BASIS PERIOD 1)LONG TERM BUDGETS 2)SHORT TERM BUDGETS

FUNCTIONAL BUDGETS 1)SALES BUDGET 2)PRODUCTIO N BUDGET 5) LABOUR & PERSONNEL BUDGET 9)SELLING & DISTRIBUTION COST BUDGET 6)FACTORY OVERHEAD BUDGET 10)CAPITAL EXPENDITURE BUDGET 3)MATERIAL USSAGE BUDGET 7)ADMINISTRA TIVE COST BUDGET 11)RESEARCH AND DEVELOPMENT COST BUDGET 4)MATERIAL PURCHASE BUDGET 8)PROCTION COST BUDGET 12)CASH BUDGET

ADVANTAGES OF BUDGETARY CONTROL � Increase efficiency � Proper decentralisation of work � Proper planning and control � Proper co-ordination � Effective utilisation of resources � Tool of cost control � Management by exemption

� Source of motivation � Maximisation of profit � Facilitates introduction of standard costing � Team effort � Basis for internal audit � Review of current trends � Measures efficiency

LIMITATIONS OF BUDGETARY CONTROL � Budgets are based on estimates. � Danger of rigidity. � Expensive techniques. � Time consuming. � Lack of co-operation. � Budget is only a tool of management. � No automatic execution. � Department conflicts arise because of competition for resource allocation. � Difficult in matching individuals and corporate goals.