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. INTRODUCTION TO BUDGET & BUDGETARY CONTROL:
The management is efficient if it is able to accomplish the objectives of the enterprise it is effective when it accomplish the objectives with minimum effort and most in attain long-rang efficiency and systematic approach in facilitate effective management performance is profit planning and control or budgeting. Budgeting is therefore an integral part historical combination of a “goal setting machine for increasing an enterprises profits and a goal setting machine for facilitating generation coordination and planning while achieving machine for facilitating generational coordination and planning while achieving the budgeted gets”
MEANING OF BUDGET
It is a financial and quantitative statement prepared and approved or to a defined period of time of policy to be pursued during that period purpose of attaining a gaining a given objective it may include income expenditure and employment capital.
In other words it is a predefined detailed plan of action development distributed as a guide operation and as partial bases for subsequent evolution of performance
MEANIING OF BUDGETORY
The process of planning all flows of financial resources into within form a entity doing some specified future period it includes providing detailed allocation of available future resources to projects responsibilities and time period form above definition I it clear that budgeting is the actual act of carrying budget it is the process of evolving the final statement yet is the end product of budgetary
ESSENTIAL OF GOOD BUDGET:
● It is prepared prior defined period of time.
● It is prepared for the definite future period.
● It is monitory and /or quantitative statements of the policy.
MEANIING OF BUDGETORY CONTROL:
It is the process of the establishing of the departmental budget relating the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results either to secure by individual action the objectives of that policy or to provide a frame bases for revision. First of all budgets are prepared and then actual results are the comparison of budgeted and actual figures will enable management to out discrepancies and take remedial measure at a proper time the budgetary controls a continuous process which helps in planning and coordination it provides method of control to a budget is means and budgetary control is the end results.
In the words of J.A. scolt budgetary control is the system of management control and accounting in which all operations are forecast so as possible planned a head and actual results compared with the forecast and the planned once
OBJECTIVES OF BUDGETORY CONTROL:
The primary of budgetary controls to help the management a systematic planning controlling the operations of enterprises the primary objective can be meat only if there is proper communication and coordination among different organization. Thus the objectives can be stated as;
● Coordination
● Communication
● Controls and performance evolution.
BUDGET, BUDGETING AND BUDGETORY CONTROL:
A budget is a blue print of a plan expressed in a quantitative terms budgeting is a technique budgetary terms to the principles procedures and practice of achieving given objectivities through budgets. Form the above definition we can differentiated the three terms as budgets are the individual objectivities of a department etc where as budgeting may be said to act of building budgets budgetary control embraces all and in addition includes the science of planning the budgets to effect on overall management tool the business planning and control.
OBJECTIVES OF THE STUDY:
● Also studied to provide a theoretical framework of budget, and budgetary control.
● To describe the profile of the organization as a backdrop for undertaking a study of budgetary control system.
● To analyze the budgetary system in practice in kesoram cement industries limited with particular reference to their objectives and phases of organizational and re-appropriation.
RESEARCH METHODOLOGY
A). SOURCES OF THE DATA
There are mainly two important sources through which the whole data is collected.
• PRIMARY DATA
The primary data of the topic is collected by personal interaction with the officials of the finance and accounting department and also from annuals of the company. The financial data relating to the organization has been collected for the 5 years
• SECONDARY DATA
The data collected from the “Prasanna Chandra” & “www.google.com”,.
SCOPE OF THE STUDY:
The data of basanth nagar, kesoram cement industries limited, have been collected mainly from secondary sources via…
1. From the concerned officers of the kesoram cement industries limited.
2. Kesoram cement industries limited-journals.
3. Accounting books, records.
4. Key books of concerned title.
5. Statically records.
6. Kesoram cement industries limited library.
LIMITATIONS OF THE STUDY:
1. Estimates are used as basis for budget plan and estimates are based on available.
2. Budgetary control cannot reduce the managerial function to a formula. It is only a managerial.
3. Tool which increase effectiveness of managerial control.
4. The use of budget may lead to restricted use of resources.
5. Efforts may therefore not be made to exceed the performance beyond the budgeted targets.
6. Frequent changes may be called for in budgets to fast changing industries climate.
7. In order that a system may be successful, budget education should be imparted at least through the formative period. Sufficient training programs should be arranged to make employees gibe positive response to budgetary activities.
8. The study is the limited up to the date and information provided by kesoram cement industries limited and its annual reports.
.REVIEW OF LITERATURE
Economic incentives in budgetary control systems
Joel.S.Demski & Gerald. A.Feltham
1978
FINDINGS:
This article explores conventional questions of why and how budgets should be employed for motivation purposes in an economic setting. The authors focus on the types of employment contracts that are associated with equilibrium allocations in the labor market. Market incompleteness is a necessary condition for use of budgets in the employment contract. Beyond this, issues of controllability, management by exception, and tightness of standards are observed to depend on the contracting environment faced by the individual agents.
An Examination of the Effects of Budgetary Control on Performance
Carolyn M. Callahan, Doris M. Cook Professor, Tammy R. Way mire
November, 2007
FINDINGS:
This study represents the first which suggests that tight budgetary control may not be as effective in improving performance as assumed both in public sector and private sector entities. While it would be premature to conclude that tight budgetary control is not related to Performance, it can be concluded that the effective Level of budgetary control will vary based on contextual factors. In this study, it appears that the effective level of budgetary control is at the net level for the funds within governmental entities.
Budget and Budgetary Control for Improved Performance:
A Consideration for Selected Food and Beverages Companies in Nigeria
Ishola Rufus Akintoye, 2007
FINDINGS:
Budget and Budgetary control, both at management and operational level looks at the
Future and lays down what has to be achieved. Control checks whether or not the plans are realized, and puts into effect corrective measures where deviation or shortfall is occurring. This study examines how budget and budgetary control can impact on the performance of the selected food and beverages companies in Nigeria, as considered in this study, being a Sample of the entire population of the firms in the Nigerian Manufacturing Industry. We reviewed the performance of the Nigeria manufacturing industry in previous and recent times. We found out that the performance of this industry leaves much to be Desired due to factors such as neglect of the industry due to over dependence on crude oil, Epileptic power supply, collapsing infrastructures, unfavorable sectoral reforming among Others and have resulted in low capacity utilization of the manufacturing industry.
An empirical investigation was undertaken, using the simple correlation analytics Technique specifically the Pearson product movement correlation coefficient. In most of the Cases considered, established the presence of strong relationship between turnover as a Variable of budget and performance indicators – EPS, DPS and NAS, of the selected food and beverages companies.
Following our findings, we advise managers and business Operators (not only in the manufacturing industry) to pay more attention to their budgetary Control systems, for those without an existing budgetary control system, they should put One in place, and those with a dummy or passive budgetary control system, it is time they Re-established a result-oriented budgetary control system as it goes a long way in Repositioning the manufacturing industry from its creeping performance level to an Improved high capacity utilization point.
Environmental turbulence and the functions of budgetary control
Nicolas Berland
01 Oct 2010
FINDINGS:
While budgetary control is a potentially significant tool when the economic environment is unstable and unpredictable, the analysis of its development demonstrates that its use has dramatically expanded over the time since companies have been able to run forecasts. In order to help them develop budgetary control, companies have implemented strategies that have reduced risks and hence improved their ability to make accurate forecasts. Such strategies have taken many forms and varied from one firm to another. They materialized as various types of agreement, including cartels, through strategies to effect market leadership, or via policies of nationalization. In those companies where the environment was stable and risk limitation was not important, budgetary control could be used for various internal purposes. In this respect, the analysis of the management of companies helps us to identify the purposes for which budgetary control is utilized. It is found that budgetary control allows for greater expansion opportunities and provides the means to strengthen the control of management within major companies. Our observations highlight a contradictory aspect of budgetary control: while it is relevant within an unstable environment, it performs best in an environment which is highly managed.
Budgeting and Budgetary Control
Jan F. Jacobs
April 29, 2003
FINDINGS:
Operational management needs to know the causes of off-standard performance in order to improve operations. The knowledge of variances (real result versus budget) will aid control, at least if and when these variances are understood well enough. The only criterion for the calculation of a variance is its usefulness.
Of course variances must be calculated immediately after the event and one should act upon them adequately. Budget processes in many cases actually exemplify what is harming companies instead of helping them. Jensen, 2001, describes what is happening in practice. Measuring performance, by whether or not achieving set targets for the period or missing them, is ridiculous.
Budgets and targets mean nothing without thorough detailed budgetary control; how should it be conducted? Variance analysis, the way it is taught at many schools and universities, in accordance with a wide variety of textbooks, is put to the test. This paper presents a few examples, with quotes from various textbooks and examinations. Problem definitions are quoted literally. Working-outs as explained by famous writers/lecturers/consultants are given where necessary and otherwise they are available at the quoted places in literature.
The author's opinion is that these working-outs cannot stand the test. Anyway my opinion is not important, the reader decides. I give my elaboration in full detail, in reaction to the corresponding working-out published in well-known textbooks/examination papers, and may the best one prevail. Of course the elaborations of others and me have a lot in common, but the discrepancies are at stake. Wrong, incomplete, unclear analyses will lead to mismanagement.
In literature a so-called Dutch method is advocated versus what is supposed to be the American way to handle variance analysis i.e. solving the problem of budgeting and budgetary control. The author's opinion is that only one calculating method can be the right one. Only the best integral working-out is the essential base to better (operational) management. Of course variance analysis is but a means to an end. A deeper understanding of the state of the company is the ultimate goal of all representations in budgeting and budgetary control. Management's task is to find the reasons for the variances and to take proper action to bring operations into line with the budget. Maybe the variances and trends indicate that the standards need amendment.
BUDGETARY CONTROL AND QUALITY OF FINANCIAL REPORTS.
TURYAHEBWA AGNES
FINDINGS:
The study on the budgetary control and quality of financial reports was carried out in Warid Telecom (U) Ltd. The major objectives of the study were; to assess the budgetary control Systems, quality of financial reports and to establish the relationship between budgetary control and quality of financial reports. The study was associational and descriptive in nature, comprising of 40 respondents who included Managers, Staff, Customers, Competitors, Lenders, Investors, Tax authority and Government. These were selected using purposive and stratified sampling methods. Respondents were chosen at random to avoid bias in the study. The primary and secondary data were based on. The data collected was analyzed, interpreted and presented in light of the findings which were obtained through the use of questionnaires, observation interview guides and documentary Findings on the budgetary control revealed that Warid Telecom (U) Ltd is comprised of estimation of the budget, coordination of budget estimates, and communication of the budget, implementation and evaluation of actual performance in respect to the budget performance as explained in chapter five. Findings on the quality of financial reports of Warid Telecom (U) Ltd showed that they are prepared using internally accepted principals relevant but they do not show a true and fair view of the operations in the company. The study also revealed that budgetary control systems influence the quality of financial reports in Warid Telecom (U) Ltd as was explained by the r2 value 58% indicating that 42% of quality of financial reports is explained by other variables not included in this study. Thus a need for the company to improve on its budget estimation, coordination ,communication implementations and evaluation in order to produce true and fair, accurate, timely and relevant financial reports to the company that can be relied on to make economic conditions. The various recommendations include the following; improve monitoring, managers should carry out thorough comparison of actual and objectives should be clear to staff for the betterment of the company goal and objectives and effective communication and clarification of the budget to the staff and constant follow ups.
3.INDUSTRY& COMPANY PROFILE
The 85-years old Indian cement industry is one of the cardinals and basic infrastructure which enjoys core sector status and play a crucial role in the economic development and growth of a country. Being a core sector this industry was subject to price and distribution controls almost uninterruptedly from world war-II when government of India announced the partial decontrol of price and distribution as the market price of cement began to raise response to decontrol manufacturing cement became increasingly attractive and the industry experienced substantial expansion. As the supply in response to the 1982 partial decontrol was significant in March 1989, price and distribution control were finally dispensed with it was one of the first major industries in the country to be so deregulated.
OVERVIEW OF THE INDUSTRY
The word cement means any substance applied for sticking things. But cement is the most vital and important material for modern construction as a binding agent. In the ancient times, clay, bricks and stones have been used for construction work. The Romans were using a binding or cementing Material that would harden under water. The first systematic effort was made by “SMEATION” who under took the erection of a new lighthouse in 1756. He observed that the production obtained by burning limestone was the best cementing material for work under water. After Fifty years UICAT a French Chemist, produced hydraulic cement by burning finely ground clay and clay and used it in the paste. Cement invented by JOSEPH ASPDIN in 1824. Since hardened cement paste resembled Portland stone found in England in color, he named it as “Portland Cement” a name, which has carried over the century. Portland cement was first manufactured in United States of America in 1975.
In India cement was produced for the first time in 1904 by South India Industries Limited in Madras. This Unit had capacity of 30 tons per day was based on lime from sea. By 1913, however three units started their operations with a combined installed capacity of 75,000 tons per annum. In 1914, indigenous production fees for short of domestic demand necessitating an import of 1,65,723 tones shipment difficulties and foreign trade relations during the first world war years acted as a catalyst for the development of indigenous industry, and by 1924 the total installed capacity grew to 5,59800 tons per annum.
In 1963, all the Cement Companies with the exception of SONE VALLEY PROTLAND CEMENT COMPANY LIMITED merged to form the ASSOCIATED CEMENT COMPANIES LIMITED. This has more facilitated a cost reduction as well as uniformity in quality. By 1947 the installed capacity of the Industry raised to 2.2 million tons per annum. After partitions, five of the cement producing units in the country went to Pakistan and total installed capacity of the eighteen units that remained in India was 1.5 million tons per annum. This increased to 3.8 million tons by 1950-51. In the three decades 1950-80, the capacity expansion was between 7 to 8 million tons per decade. The targets set in respect of additional capacity generation was released with the impetus given by the partial decontrol announced in 1982, several units lockup project for expansions of capacity and modernization which contributed towards increased production.
DEFINITION OF CEMENT:
Cement may be defined as “it is a mixture of calcium silicate and aluminates”. Which have the property of setting and hardening under water. The amount of silica, Alumina who is present in each crust is sufficient to combine with calcium, oxide (Cao) to from the corresponding calcium silicate and aluminates.
CLASSIFICATION OF CEMENT:
Cement is 3 types.
PUZZOLANTIC CEMENT:
It consists of mixture of silicate Calcium and Aluminum. Shows the hydraulic property when it is in the form of powder and being mixed with suitable proportion of lime. The rate of hardening is much slower and the comprehensive strength developed is about a half of Portland cement. It is found more resistant to the chemical action than others.
NATURAL CEMENT:
This is natural occurring material. It is obtained from cement rocks. These cement rocks are claying limestone containing solicits, aluminates of calcium. The selling property of this cement is more than the Portland cement but is comprehensive strength is half of its.
PORTLAND CEMENT:
1. Ordinary Portland cement.
2. Repaid hardening Portland cement.
3. Lows heat cement.
4. White or colored cement.
5. Water proof Portland cement.
6. Portland slag cement.
7. Portland pozzolana cement.
8. Sulfate Resisting cement.
INDIAN CEMENT INDUSTRY – PRESENT STATUS
After the declining of the industry in July 1991 it reacted positively to the policy changes. New capacities created and the volume of production increased. Form a situation of improving cement, the country started exporting due to high quality and cost effectiveness. After liberalization the black market in cement also disappeared. Currently India stands second largest in the cement production worldwide after China. On the other hand per capita consumption in India is only books as compared to the world average of 260kgs. The industry has S 9 companies owning 11 S plants. In the matters of exports the government considers cement as an extreme focus area. However Indian cement in the global market is not very competitive due to high power and full costs. In order to improve its position in the international market, technological up gradation is essential in terms of process, product diversification cost reduction, quality control and energy saving.
ABOUT THE INDUSTRY:
These chapter examiners a profile of Kesoram Cement Industries Ltd. i.e., its history, location organization structure etc.,
LOCATION:
Kesoram cement industry is one of the leading manufacturers of cement in India. It is a day process cement plant. The plant capacity is 8.26 lakhs tones per annum. It is located at Basanth Nagar in KarimNagar district of Andhra Pradesh, Basanth Nagar is 8km away from the ramagundam railway station linking madras to New Delhi. The chairman of the company is sty. B.K Birla
HISTORY:
The first unit at Basanth Nagar with a capacity or 2.1 lakhs tones per annum incorporating suspension-preheated system was commissioned during the year 1969. the second unit was setup in year 1971 with a capacity of 2.1 tons per annum and (he third unit with a capacity of 2.5 lakhs tons per annum went on stream in the year 1978. the coal for this company is being supplied iron Singareni collieries and the power is obtained from APSEB. The power demand for the factory is about 21 MW. Kesoram has got 2 DG, set of 4 MW each installed in the year 1987.Kesoram cement has set up a 15KW capacity power plant to facilitate for uninstall power supply for manufacturing of cement start at 24 August 2007 per hour 12MW, actual power is 15MW.
Birla Supreme in popular brand of Kesoram Cement from its prestigious plant of Basanth Nagar in AP, which has outstanding track record. In performance and productivity serving the nation for the last two and half decades. It has proved its distinction by bagging several national awards. It also has the distinction of achieving optimum capacity utilization. Kesoram offers a choice of top quality portioned cement for light, heavy constructions and allied applications. Quality is built every fact of the operations.
The plant layout is rational to begin with. The limestone is rich in calcium carbonate a key factor that influences the quality of final product. The day process technology used in the latest computerized monitoring overseas the manufacturing process. Samples are sent regularly to the bureau of Indian standards. National council of construction and building material for certification of derived quality norms.
The company has vigorously undertaking different promotional measures their product through different media which includes the use of newspapers, magazines, hoardings etc. Kesoram cement industry distinguished itself among all the cement factories in India by bagging the National productivity Award consecutively. For two years the year 1985-1987. the federation of Andhra Pradesh Chamber & commerce and industries (FAPPCCI) also conferred on Kesoram Cement. An award for the best industrial promotion expansion effort in the state for the year 1984. Kesoram also bagged FAPCCI awarded for “Best Family Planning Effort in the state” for the year 1987-1988.
One among the industrial giants in the county today, serving the nation on the industrial front. Kesoram industries Ltd has a cheque red and eventful history dating back to the twenties when the industrial House of Birla’s acquired it. With only a textile mill under its banner 1924 it grew form strength to strength its activities 10 newer fields like transparent paper, spun pipes, refractory’s, tires and other products.
Looking to wide gap between the demand and supply of a vital commodity cement, which plays, UI important role in national building activity the Government of India had de-licensed the cement industry in eh year 1966 with a view to attract private entrepreneurs to augment the cement production. Kesoram rose to the occasion and divided to set up a few cement plants in the country.
Kesoram cement undertaking marketing activities extensively in the states of Andhra Pradesh, Karnataka, Tamilnadu, Kerala, Maharashtra and Gujarat. In AP sales depots are located in different areas like Karimnagar, Warangal, Nizamabad, Vijayawada and Nell ore. In other states it has opened around 10 depots.
THE AWARD WON ARE:
Kesoram cement bagged prestigious awards like national awards for productivity and technology and conversation and several state awards for year 1984. Kesoram cement is best family planning effort “in the federation of Andhra Pradesh chamber of commerce and industry and also national award for two successive years 1985 and 1986. National award for mines safety for two years 1985-86 & 1986-1987.
It has also bagged the national award for energy efficiency for the year 1989-1990 for the performance among all cement plants in India. Thus award stall by national council for cement and building material (NCCBM) in association with the government of India.
Kesoram bagged the prestigious Andhra Pradesh state productivity award in 1987-1989 also annexed state award for industrial management in 1988-89 and also “Best industrial promotion expansion efforts” in the estate and Yajamanyza Ratna and best efforts of an industrial unit in the state to develop rural economy was bagged for its contribution towards the responsibility of rural and community development programmers of the year 1991.
It also bagged the May Day award “of the government of Andhra Pradesh for the best management and the Pandit Jawaharlal Nehru silver rolling trophy for the industrial productivity effort in the state of Andhra Pradesh by FAPCCI and also the India Gandhi memorial national award for excellence.
Best management award of the government of Andhra Pradesh for the year 1993. During the last 3 years the government of Andhra Pradesh has given the following awards Best awards for the year 1994.
To keep the ecological balance they have also undertaken massive tree plantation in the factory and government of India has nominated township areas and them for VRIKSHMITRA award. Best effort of an industrial unit in the state for rural development 1944-95 presented by chief minister in March 1996.
In the year March, 2009 “Best Management award 2009” for the best Management practices in Kesoram Cement, Presented by Chief Minister.
WEAKNESSES:
a. The per capita consumption of the cement in India is very low.
b. The transport costs in India are very high.
c. The cement industry is facing with acute power shortage and raw material problem.
d. The industry is also facing major packaging problems.
OPPORTUNITIES:
a. The industry has tremendous potential for growth in India.
b. In near future cement is going to replace tar for the construction of roads.
c. There are good prospects for export with cement export promotion council.
d. The government polices of reduction in excise duty and exempting cement from the just packaging may act as boon to the industry.
THREATS:
● The surplus levels are increasing as the production of the cement is much greater than the consumption.
● In the present scenario of stiff competition there is a declining trend of price.
● The performance of the smaller unit is badly hit by major takeovers.
● The crisis situation in South East Asian countries may create problem to the exports of the industry.
AIMS:
● Continuous effort to improving productivity.
● Evaluating individual skill trough training and motivations.
● Total involvement through participant’s management activities.
● Creating healthy and safe environment.
● Social development.
4.CONCEPTUAL FRAME WORK
BUDGET:
Budget is essential in every walk of our life – national, domestic and business. A budget is prepared to have effective utilization of funds and for the realization of objective as effective utilization of funds and for the realization of objective as efficiently as possible. Budgeting is a powerful tool to the management for performing its functions ie. Formulating plans, coordination activities and controlling operations etc., efficiently. For efficient and effective management planning and control are two highly essential functions. Budget and budgetary control provides a set of basic techniques for planning and control. A budget fixes a target in terms of rupees or quantities against which the actual performance is measured. A budget is closely related to both the management function as well as the accounting function of an organization. As the size of the organization increases, the need for budgeting is correspondingly more because a budget is an effective tool of planning and control. Budget is helpful in coordinating the various activities (such as production, sales, purchase etc) of the organization with result that all the activities precede according to the objective. Budgets are means of communication. Ideas of the top management are given practical shape. As the activities department heads are coordinated at the much needed for the very success of an organization. Budget is necessary to future to motive the staff associate, to coordinate the activities of different departments and to control the performance of various persons operating at different levels. Budgets maybe divided into two basic classes. Capital and operating budgets. Capital budget are directed towards proposed expenditure for new projects and often require special financing. The operating budgets are directed towards achieving short-term operational goals of the organization for instance, production or profit goals in a business firm. Operating budget maybe sub-divided into various departmental of functional budgets.
DEFINITION OF BUDGET:
According to ICMA, England, a budget is, “financial and/or quantitative statement, prepared and approved prior to be defined period of time, of the policy to be pursed during the period for the purpose of attaining a given objective.”
BUDGETARY CONTROL:
INTRODUCTION:
It is the process of establishing of departmental budget relating the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted results to secure by individual action the objectives of that policy or to provide affirm basis for revision.
MEANING:
In the words of J.A.scolt budgetary control is the system of management control and account in which all operations are forecast so possible planned ahead and actual results compared with the forecast and planned ones. No system of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budget is known as budgetary control. The process of budgetary control includes.
1. Establishment of budget for each function and section of the organization.
2. Executive responsibility in order to perform the specific tasks so that objectives of the enterprise maybe attained.
3. Continuous comparison of the actual performance with that of the budget and placing the responsibility of executives for failure to achieve the desired results a given in the budget.
4. Taking suitable remedial action to achieve the desired objective if there is a variation of the actual performance from the budgeted performance.
5. Revision of budgets in the light of changed circumstances.
DEFINITION OF BUDGETARY CONTROL:
According to the brown and Howard “budgetary control is the system of controlling costs which includes the preparation of budgets, co-coordinating the department and establishing the responsibilities, comparing the actual performance with the budgeted and acting up on the results to achieve the maximum profitability.”
ESSENTIAL FEATURES OF A BUDGETARY:
• Budgetary control defines the objective and policies of the undertaking as a whole.
• It is an effective method of controlling the activities of various departments of a business unit. It fixed targets and the various departments have to efficiently to reach the targets.
• It is an effective method of controlling the activities of various departments of a business unit. It fixed targets and the various departments have to efficiently to reach the targets.
• It secures proper co ordination among the activities of various departments.
• it helps the management to fix up responsibility in case the performance is below expectation
• it helps the management to reduce wasteful expenditure. this leads to reduction in the cost of production
• it brings in efficiency and economy by promoting cost consciousness among the employees.
• It facilitates centralized control with decentralized activity.
• It acts as internal audit by a continuous evaluation of departmental results and costs.
ADVANTAGES OF BUDGET AND BUDGETARY CONTROL.
There are a number of advantages to budgeting and budgetary control:
• Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organization purpose and direction.
• Promotes coordination and communication.
• Clearly defines areas of responsibility. Requires managers of budget centers to be made responsible for the achievement of budget targets for the operations under their personal control.
• Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.
• Enables remedial action to be taken as variances emerge.
• Motivates employees by participating in the setting of budgets.
• Improves the allocation of scarce resources.
• Economizes management time by using the management by exception principle.
METHODS OR TYPES OF BUDGETS:
The analysis and interpretation of budgetary control is used to determine the control operation and results of operations as well a no. of devices are used to study the relationship between different budgets.
LONG TERM BUDGETS:
The long term budgets are the budgets prepared for a long period of five years they are concerned with planning the operations of a firm over a considerably long period of time. The financial” controller” exclusively for top management usually prepares long-term budgets. These budgets are useful in terms of physical units (i.e... quantitative) or percentage, the accurate values may be difficult to forecast over such long period. Initial expenditure, research and development budgets, etc, are examples term budgets.
SHORTTERM BUDGETS:
Short-term budgets prepared for a short period of two is. They are prepared for those activities the trend in which cannot be seen easily over long periods. These budgets are very useful in case of consumer goods industries such as sugar, cotton, textiles, etc they are generally, prepared in term of physical units (i.e., quantities) as well as monetary units.(i.e., value..) materials budget, cash budget. Etc are examples of short-term budgets. They are useful to lower level of management for control purpose.
CURRENT BUDGETS:
Current budgets are a budget, which is established for use over a short period of time and is related to current conditions. Thus current budgets are essentially short term budgets adjusted to current (i.e., present or prevailing) con dictions or circumstances. They are prepared, for Avery short period. Say, a quarter or a month. They relate to current activities of the following period.
INTERIM BUDGETS:
Interim budgets are, which are prepared in between two budgets periods. These budgets may get integrated with budgets of the following period.
ZEROBASED BUDGETING:
As the name suggests, it is starting from a “scratch”, the normal technique of budgeting is to use previous levels as a base for preparing this year’s budget. This method carries previous years inefficiencies to the present year because we taken last year a guide, and decide “what is to be done this year when this much was the performance of the last year.
BUDGETARY CONTROL AN OVERVIEW
The budgeting process is used in the performance budgeting for the construction of phase which includes pre commissioning activities. Besides meeting the essential requirements of managements of control. The budgeting exercises also cover the long term capital budgeting, which is presented in the form of annual plan.
ANALYING BUDGETORY CONTROL
ACCORDING TO THE NATURE EXPENDITURE BUDGET ARE CLASSIFIED UNDER:
>> Direct capital outlay on works.
>> Technical consultancy.
>> Incidental construction during construction.
>> Employee cost.
------- KHAN AND P.K.JAIN
PROBLEMS IN BUDGETING
Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms.
Budgets can be seen as pressure devices imposed by management, thus resulting in:•
a) Bad labor relations
b) Inaccurate record keeping
Departmental conflict arises due to:•
a) Disputes over resource allocation
b) Departments blaming each other if targets are not attained.
It is difficult to reconcile personal/individual and corporate goals.•
Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department.•
Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs.
Managers may overestimate costs so that they will not be blamed in the future should they overspend.•
LIMITATIONS OF BUDGETARY CONTROL:
• The preparation of a budget under inflationary conditions and changing government policies is really difficult. Thus, the accurate position of the business cannot be estimated.
• Accuracy in budgeting comes through expenditure. Hence it should not be relied on too much in the initial stages.
• Budget is only a management tool. It is not a substitute for management. it cannot be replace management in decision making.
• Budgeting involves a heavy expenditure, which small concerns cannot afford.
• There will be active and passive resistance to budgetary control as it points out the efficiency or in efficiency of individuals.
• The success of budgetary control depends upon wiling co-operation and teamwork. This is often lacking.
• Frequent changes maybe called for in budgets due to fast changing industrial climate. It may be difficult for a company to keep pace with fast changes, because revision of budgets is expensive exercise.
BUDGET PROCEDURE
Having the budget organization and fix the period, the actual work or budgetary control can be taken up to the following pattern.
STEPS IN BUDGETARY CONTROL
Organization for budgeting setting up of definite plans of organization is a first a step towards installing budgetary controlling system in any organization a budget manual should be prepared giving detail of the powers, duties, responsibilities and areas of operation of each executive in each organization.
v BUDGETARY MANUAL
A budgetary manual lays down the details of an organizational set up, the routine procedures and programmes to be followed for developing budgets for various items and the duties and responsibilities of the executives regarding the operation of the budgetary control system. CIMA England defines a budgetary manual as “a document schedule or book let which sets out inter alias, the routine of and the forms and records required for budgetary control”. Thus, it is a document, which guides the executives in preparing various budgets. Budgets are to be drawn keeping in view the objectives of the organization given the budget manual. Responsibility and functions of each executive in regard to budgeting are return down in the budget manual to avoid any duplication or overlapping of responsibilities. Steps and the methods developing various budgets and the methods of reporting performance against the budget are return down in the budget manual. In short it is a written document, which gives everything relating to the preparation and execution of various budgets. It should be clear and there should be no ambiguity in it.
The following are some of the most important matters covered in budget manual.
• Introducing and brief explanation of the objects, benefits and principles of budgetary control.
• Organization chart giving the titles to different personals with full explanation of the duties of each to operating system and preparation of departmental and functional budgets.
• Length of budget periods and control periods should be clearly stated A method of accounting and control of expenditure.
• A statement showing a responsibility and of authority given to each manager for approval of budgets, vouchers and all other forms and documents which authorized them to spend money. The authority for granting approval must be clearly stated.
• The entire process of budgeting programme including the timetable for periodically reporting. a schedule should be drawn for this Purpose, specimen form and other number of copies to be used for each report and statement. Budget centers should also be clearly stated.
• Outline of main budgets and their accounting relationships
• Explanation of key budgets.
v FIXATION OF BUDGET PERIOD:
The budget period mean the period for which a budget is prepared and employed. The budget period will depend upon the type of business and the control aspect. Budget period mean the period for which a budget is prepared and employed. The budget period depends upon the nature of the business and the control techniques. For example, in case of seasonal industries (i.e., food or clothing) the budget period should be a short one and should cover one season. But in case of industries with heavy capital expenditure such as heavy engineering works, the budget period should be long enough to meet the requirements of the business. From control point of view, the budget period should be a short one so that the actual results may be compared with the budget each week end or month end and discussed with the discussed with the Budget committee. Long term budgets should be supplemented by short term budgets to make the budgetary control successful, as short-terms budgets will help exercising control over day-today operations. In short, the budget period should not be too long so that there may be sufficient time before budget implementation.
For most business, annual budget is quite common because it compares with the financial accounting year. There should be a regular time plan for budget preparation. It may be on the following lines.
● Long-term budgets for three to five years should be prepared for expansion and modernization of the undertaking, introduction of new products or new projects and undertaking heavy advertisement.
● Annual budgets coinciding with financial accounting year should be prepared for the operations activities (i.e., sales, purchases, and production etc., of the business).
● For control purposes, short-term budgets-monthly or even weekly budget-should be prepared for watching progress of actual performance against targets. Short-term budgets are prepared to see that actual performance is proceeding according to the budgets and early corrective action may be taken if there is any pitfall.
The responsibility for preparation and implementation of the budgets may be fixed as under.
v BUDGETARY CONTROLLER:
Although the chief executive I finally responsible for the budgetary programme. It is better if a large part of the supervisory responsibility is deluged to an official designated as Budget Controller or Budget Director. Such a person should have knowledge of the technical details of the business and report directly to the president or the chief executive.
v ROLLING (CONTINUES) BUDGET:
This is a budget which is updated continuously by adding a further period ( a month/quarter) and deducting a corresponding earlier period. Budgeting is a continuous process under these methods of preparation of budget. Once the first period elapses, the forecast for that period is dropped and the forecast reliably, this method is useful. However, it is a costly exercise but matched by considerable reduction in operational variances.
v ANNUAL VS CONTINUES BUDGETING SYSTEM:
In some organizations budgets are prepared on annual basis. But annual budgets may not help the management to have control because variances due to rapidly changing conditions affect the sales in quantity and prices, severe rapidly changing conditions affect the sales in quantity and prices, severe inflationary conditions exist resulting fast increase in the prices of inputs without reflecting in sales prices immediately and wide range of products being produced making it not feasible to have precise estimate of levels of activity for a year. The procedure in continuous budgeting will be that a year will be divided into four quarters. Monthly budgets for the first quarter and three quarterly budgets for the next year can be prepared. For the first quarter precise estimates can be drawn up monthly. The budget estimates for the second quarter may be revised working out separately monthly estimates on more precise basis for control purposes before the starting of the second quarter. Similarly procedure may be followed for third and fourth quarters. This method a time which need not be in respect of or coincide with the financial year. It will enable to evolve a precise plan of action and control of variance functions at the least for the immediate quarter and a broad tentative one the subsequent three quarters on a continues basis.
v PRINCIPAL BUDGET (LIMITING) FACTOR:
Principal budget factor is such an important factor that it would affect all the functional budgets to a large extent. The extent of its influence must be assessed first in order to ensure that functional budgets are reasonably capable of fulfillment. This is the factor in the activities of an undertaking which at a particular point in time or over a period will limit the volume of output. It is the governing factor which is a major constraint on all the operational activities of the organization, so this factor is taken into consideration to determine whether the budgets are capable of attainment. It is essential to locate the limiting factor may be any one of the following:
DIFFERENT TYPES OF BUDGET:
Different types of budgets have been developed keeping in view the different purposes they serve. Budgets can be classified according to:
● The coverage they encompass;
● The capacity to which they are related;
● The conditions on which they are based; and
● The periods which they cover.