20-07-2016, 12:00 PM
Budget
Budget represents the objectives of any organization that is based on the implication of forecast and related to planned activities.
Budget is neither an estimate nor a forecast because an estimation is a predetermination of future events, may be based on simple guess or any scientific principles.
Similarly, a forecast may be an anticipation of events during a specified period of time. A forecast may be for a specific activity of the company. We normally forecast likely events such as sales, production, or any other activity of the organization.
On the other hand, budget relates to planned policy and program of the organization under planed conditions. It represents the action according to a situation which may or may not take place.
Budgeting
Budgeting represents the formation of the budget with the help and coordination of all or the various departments of the firm.
Budgetary Control
Budgetary control is a tool for the management to allocate responsibility and authority in planning for future and to develop a basis of measurement to evaluate the efficiency of operations.
A budget is a plan of the policy to be pursued during a defined time period. All the actions are based on planning of budget because budget is prepared after studying all the related activities of the company. Budget gives a communication ground to the top management with the staff of the firm who are implementing the policies of the top management.
Budgetary control helps in coordinating the economic trends, financial position, policies, plans, and actions of an organization.
Budgetary control also helps the management to ensure and control the plan and activities of the organization. Budgetary control makes it possible by continuous comparison of actual performance with that of the budgets.
Budgets are the individual objectives of a department whereas budgeting may be said to be the act of building budgets. Budgetary Control embraces all this and in addition, includes the science of planning the budgets themselves and utilization of such budget to effect an overall management tool f or the business planning and control.
...Rowland and William
Types of Budgets
Budgets can be categorized in various ways. Let us go through the types of budgets in detail.
Functional Budgets
It relates to any function of the firm such as sales, production, cash, etc. Following budgets are prepared in functional budgets:
Sales Budget
Production Budget
Material Budget
Manufacturing Budget
Administrative Cost Budget
Plant Utilization Budget
Capital Expenditure Budget
Research and Development Cost Budget
Cash Budget
Master Budget or Summarized Budget or Finalized Profit plan
This budget is very useful for the top management of the company because it covers all the information in a summarized manner.
Fixed Budget
It is a rigid budget and is drawn on the assumption that there will be no change in the budget level.
Flexible Budget
It is also called a sliding scale budget. It is useful in:
the new organizations where it is difficult to foresee,
the firms where activity level changes due to seasonal nature or change in demand,
the industries based on change of fashion,
the units which keep on introducing new products, and
the firms which are engaged in ship-building business.
Zero Base Budgeting
Zero base budgeting is not based on the incremental approach; previous year figures are not adopted as base.
CIMA has defined it as:
As a method of budgeting, where all activities are revaluated each time a budget is set, discrete levels of each activity are valued and combination is chosen to match the funds available.
Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all, budgets are prepared and then actual results are recorded.
The comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at a proper time. The budgetary control is a continuous process which helps in planning and co-ordination. It provides a method of control too. A budget is a means and budgetary control is the end-result.
Definitions:
“According to Brown and Howard, “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” Weldon characterizes budgetary control as planning in advance of the various functions of a business so that the business as a whole is controlled.
J. Batty defines it as, “A system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services. Welsch relates budgetary control with day-to-day control process.” According to him, “Budgetary control involves the use of budget and budgetary reports, throughout the period to co-ordinate, evaluate and control day-to-day operations in accordance with the goals specified by the budget.”
From the above given definitions it is clear that budgetary control involves the follows:
(a) The objects are set by preparing budgets.
(b) The business is divided into various responsibility centres for preparing various budgets.
© The actual figures are recorded.
(d) The budgeted and actual figures are compared for studying the performance of different cost centres.
(e) If actual performance is less than the budgeted norms, a remedial action is taken immediately.
Objectives of Budgetary Control:
Budgetary control is essential for policy planning and control. It also acts an instrument of co-ordination.
The main objectives of budgetary control are the follows:
1. To ensure planning for future by setting up various budgets, the requirements and expected performance of the enterprise are anticipated.
3. To operate various cost centres and departments with efficiency and economy.
4. Elimination of wastes and increase in profitability.
5. To anticipate capital expenditure for future.
6. To centralise the control system.
7. Correction of deviations from the established standards.
8. Fixation of responsibility of various individuals in the organization.
Essentials of Budgetary Control:
There are certain steps which are necessary for the successful implementation budgetary control system.
These are as follows:
1. Organisation for Budgetary Control
2. Budget Centres
3. Budget Mammal
4. Budget Officer
5. Budget Committee
6. Budget Period
7. Determination of Key Factor.
1. Organization for Budgetary Control:
The proper organization is essential for the successful preparation, maintenance and administration of budgets. A Budgetary Committee is formed, which comprises the departmental heads of various departments. All the functional heads are entrusted with the responsibility of ensuring proper implementation of their respective departmental budgets.
The Chief Executive is the overall in-charge of budgetary system. He constitutes a budget committee for preparing realistic budgets A budget officer is the convener of the budget committee who co-ordinates the budgets of different departments. The managers of different departments are made responsible for their departmental budgets.
2. Budget Centres:
A budget centre is that part of the organization for which the budget is prepared. A budget centre may be a department, section of a department or any other part of the department. The establishment of budget centres is essential for covering all parts of the organization. The budget centres are also necessary for cost control purposes. The appraisal performance of different parts of the organization becomes easy when different centres are established.
3. Budget Manual:
A budget manual is a document which spells out the duties and also the responsibilities of various executives concerned with the budgets. It specifies the relations amongst various functionaries.
4. Budget Officer:
The Chief Executive, who is at the top of the organization, appoints some person as Budget Officer. The budget officer is empowered to scrutinize the budgets prepared by different functional heads and to make changes in them, if the situations so demand. The actual performance of different departments is communicated to the Budget Officer. He determines the deviations in the budgets and the actual performance and takes necessary steps to rectify the deficiencies, if any.
He works as a coordinator among different departments and monitors the relevant information. He also informs the top management about the performance of different departments. The budget officer will be able to carry out his work fully well only if he is conversant with the working of all the departments.
Budget represents the objectives of any organization that is based on the implication of forecast and related to planned activities.
Budget is neither an estimate nor a forecast because an estimation is a predetermination of future events, may be based on simple guess or any scientific principles.
Similarly, a forecast may be an anticipation of events during a specified period of time. A forecast may be for a specific activity of the company. We normally forecast likely events such as sales, production, or any other activity of the organization.
On the other hand, budget relates to planned policy and program of the organization under planed conditions. It represents the action according to a situation which may or may not take place.
Budgeting
Budgeting represents the formation of the budget with the help and coordination of all or the various departments of the firm.
Budgetary Control
Budgetary control is a tool for the management to allocate responsibility and authority in planning for future and to develop a basis of measurement to evaluate the efficiency of operations.
A budget is a plan of the policy to be pursued during a defined time period. All the actions are based on planning of budget because budget is prepared after studying all the related activities of the company. Budget gives a communication ground to the top management with the staff of the firm who are implementing the policies of the top management.
Budgetary control helps in coordinating the economic trends, financial position, policies, plans, and actions of an organization.
Budgetary control also helps the management to ensure and control the plan and activities of the organization. Budgetary control makes it possible by continuous comparison of actual performance with that of the budgets.
Budgets are the individual objectives of a department whereas budgeting may be said to be the act of building budgets. Budgetary Control embraces all this and in addition, includes the science of planning the budgets themselves and utilization of such budget to effect an overall management tool f or the business planning and control.
...Rowland and William
Types of Budgets
Budgets can be categorized in various ways. Let us go through the types of budgets in detail.
Functional Budgets
It relates to any function of the firm such as sales, production, cash, etc. Following budgets are prepared in functional budgets:
Sales Budget
Production Budget
Material Budget
Manufacturing Budget
Administrative Cost Budget
Plant Utilization Budget
Capital Expenditure Budget
Research and Development Cost Budget
Cash Budget
Master Budget or Summarized Budget or Finalized Profit plan
This budget is very useful for the top management of the company because it covers all the information in a summarized manner.
Fixed Budget
It is a rigid budget and is drawn on the assumption that there will be no change in the budget level.
Flexible Budget
It is also called a sliding scale budget. It is useful in:
the new organizations where it is difficult to foresee,
the firms where activity level changes due to seasonal nature or change in demand,
the industries based on change of fashion,
the units which keep on introducing new products, and
the firms which are engaged in ship-building business.
Zero Base Budgeting
Zero base budgeting is not based on the incremental approach; previous year figures are not adopted as base.
CIMA has defined it as:
As a method of budgeting, where all activities are revaluated each time a budget is set, discrete levels of each activity are valued and combination is chosen to match the funds available.
Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all, budgets are prepared and then actual results are recorded.
The comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at a proper time. The budgetary control is a continuous process which helps in planning and co-ordination. It provides a method of control too. A budget is a means and budgetary control is the end-result.
Definitions:
“According to Brown and Howard, “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” Weldon characterizes budgetary control as planning in advance of the various functions of a business so that the business as a whole is controlled.
J. Batty defines it as, “A system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services. Welsch relates budgetary control with day-to-day control process.” According to him, “Budgetary control involves the use of budget and budgetary reports, throughout the period to co-ordinate, evaluate and control day-to-day operations in accordance with the goals specified by the budget.”
From the above given definitions it is clear that budgetary control involves the follows:
(a) The objects are set by preparing budgets.
(b) The business is divided into various responsibility centres for preparing various budgets.
© The actual figures are recorded.
(d) The budgeted and actual figures are compared for studying the performance of different cost centres.
(e) If actual performance is less than the budgeted norms, a remedial action is taken immediately.
Objectives of Budgetary Control:
Budgetary control is essential for policy planning and control. It also acts an instrument of co-ordination.
The main objectives of budgetary control are the follows:
1. To ensure planning for future by setting up various budgets, the requirements and expected performance of the enterprise are anticipated.
3. To operate various cost centres and departments with efficiency and economy.
4. Elimination of wastes and increase in profitability.
5. To anticipate capital expenditure for future.
6. To centralise the control system.
7. Correction of deviations from the established standards.
8. Fixation of responsibility of various individuals in the organization.
Essentials of Budgetary Control:
There are certain steps which are necessary for the successful implementation budgetary control system.
These are as follows:
1. Organisation for Budgetary Control
2. Budget Centres
3. Budget Mammal
4. Budget Officer
5. Budget Committee
6. Budget Period
7. Determination of Key Factor.
1. Organization for Budgetary Control:
The proper organization is essential for the successful preparation, maintenance and administration of budgets. A Budgetary Committee is formed, which comprises the departmental heads of various departments. All the functional heads are entrusted with the responsibility of ensuring proper implementation of their respective departmental budgets.
The Chief Executive is the overall in-charge of budgetary system. He constitutes a budget committee for preparing realistic budgets A budget officer is the convener of the budget committee who co-ordinates the budgets of different departments. The managers of different departments are made responsible for their departmental budgets.
2. Budget Centres:
A budget centre is that part of the organization for which the budget is prepared. A budget centre may be a department, section of a department or any other part of the department. The establishment of budget centres is essential for covering all parts of the organization. The budget centres are also necessary for cost control purposes. The appraisal performance of different parts of the organization becomes easy when different centres are established.
3. Budget Manual:
A budget manual is a document which spells out the duties and also the responsibilities of various executives concerned with the budgets. It specifies the relations amongst various functionaries.
4. Budget Officer:
The Chief Executive, who is at the top of the organization, appoints some person as Budget Officer. The budget officer is empowered to scrutinize the budgets prepared by different functional heads and to make changes in them, if the situations so demand. The actual performance of different departments is communicated to the Budget Officer. He determines the deviations in the budgets and the actual performance and takes necessary steps to rectify the deficiencies, if any.
He works as a coordinator among different departments and monitors the relevant information. He also informs the top management about the performance of different departments. The budget officer will be able to carry out his work fully well only if he is conversant with the working of all the departments.