Budgetary Control by Dhaval

7/31/2019 Budgetary Control by Dhaval

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Prepared by:-Dharmendra V.

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Budgeting

* INTRODUCTION* TYPES

* METHODS


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INTRODUCTION:

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 overallorganizational objective. i.e. coordination

whether operations conform to the plan of

operations relating to that period i.e. control


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WHAT IS A BUDGET?

A plan expressed in money. It is prepared and approved prior

to the budget period and may show income, expenditure and the

capital to be employed. May be drawn up showing incremental

effects on former budgeted or actual figures, or be compiled by

Zero-based budgeting.


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WHAT IS BUDGETARY CONTROL?

Budgetary control is the use of the comprehensive system of

budgeting to aid management in carrying out its functions like

planning, coordination and control.

Budgetary control is the device that a company uses for

all these purposes.


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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.


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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?

d. Where is it to be produced?


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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 beacquired 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 variablefactors 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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13. 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 highestpriority?


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Budgetary Control by Dhaval

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