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OPORIOPO MICHAEL GODKNOWS

BUDGETING AS TOOL FOR PLANNING AND CONTROL

IN A MANUFACTURING FIRM (A CASE STUDY OF

NIGERIAN BOTTLING COMPANY PLC, ENUGU)

BUSINESS ADMINISTRATION

DEPARTMENT OF ACCOUNTANCY

Madufor, Cynthia C. Digitally Signed by: Content manager’s Name

DN : CN = Webmaster’s name

O= University of Nigeria, Nsukka

OU = Innovation Centre

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BUDGETING AS TOOL FOR PLANNING AND CONTROL IN A

MANUFACTURING FIRM (A CASE STUDY OF NIGERIAN

BOTTLING COMPANY PLC, ENUGU)

BY


PG/MBA/11/60318


FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA, ENUGU CAMPUS

AUGUST, 2012

BUDGETING AS TOOL FOR PLANNING AND CONTROL IN A

MANUFACTURING FIRM (A CASE STUDY OF NIGERIAN

BOTTLING COMPANY PLC, ENUGU)

3

BY


PG/MBA/11/60318

A PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF

THE REQUIREMENT FOR THE AWARD OF MASTERS OF

BUSINESS ADMINISTRATION, (MBA) DEGREE IN

ACCOUNTANCY

TO


FACULTY OF BUSINESS ADMINISTRATION

UNIVERSITY OF NIGERIA, ENUGU CAMPUS

SUPERVISOR: DR. S.E EMEMGINI

AUGUST, 2012

DEDICATION

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This work is dedicated to my late father Chief Oporiopo Michael. And above all, to God

Almighty whose inspiration and protection to my life is unquantifiable.

ACKNOWLEDGEMENTS

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I would forever remain indebted to God Almighty the sources of my strength and

inspiration. I am grateful to the Head of Accountancy Department, University of Nigeria,

Enugu Campus, Dr. R.O. Ugwoke for his useful advice and suggestion in the course of

the research work.

Worthy of mention is the invaluable contribution of my Supervisor, Dr. S.E.

Ememgini whose corrections and encouragement saw me through this work. I am also

grateful to the immense moral support of Madam Veronica U.A. Also, worthy of note is

my class mate Mr. Frank Solomon.

Similarly, the contribution of my mentor, and friend, Sir Felix Odubo, Director of

Budget, Bayelsa State, cannot be ruled out. The last but not the least is the tireless effort

of the typist Miss Okonkwo Ifeoma and the staff of Nigerian Bottling Company PLC,

Enugu.

ABSTRACT

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The increased complexity of the society and high level of competition in the business

world has made it imperative for business organization to do serious planning and control

in order to survive volatile business climate. This research work studied budgeting as a

tool for planning and control in a manufacturing firm with particular emphasis on

Nigerian Bottling Company PLC, Enugu. The main objective of this study was to x-ray

the relevance of budgeting as tool for planning and control in manufacturing firm. And

also to ascertain the effect of non-existence of budget on the performance of business

organization. The methodology adopted were simple percentage and chi-square statistical

methods to deduce general statement about the effect of budgeting on planning and

control is relevant for the survival of manufacturing companies. Also, budgeting is a tool

for measuring efficiency and performance in manufacturing firm. The recommendations

put forward was that management of every organization should prepare budgeting and

adhere strictly to the provisions of the budget. There should also be a regular and periodic

review of the budget in order to detect variations. The research work will serve as a

template to managers, entrepreneurs, creditors, and employees on how to effectively

allocate scarce resources judiciously through budgetary planning and control.

APPROVAL PAGE

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this is to certify that this work, “Budgeting as a Tool for Planning and Control in a

Manufacturing Firm” (A Case Study of Nigerian Bottling Company Plc, Enugu) was

done by Oporiopo Michael Godknows, with registration number PG/MBA/11/60318, to

the satisfaction of my Supervisor and Head of Department of Accountancy.

………………………………….. ....……………………

DR. S.E EMEMGINI DR. R.O. UGWOKE

Project supervisor Head of Department

Date: …………………………… Date:…………….…

DECLARATION

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i, Oporiopo Michael Godknows, a Postgraduate Student of the Department of

Accountancy, University of Nigeria, Enugu Campus, with Registration Number

PG/MBA/11/60318, has satisfactorily completed the requirements for the course and

research work for the Award of the Degree of Masters of Business Administration

(MBA) in Accountancy.

…………………….………………………


PG/MBA/11/60318

Researcher

TABLE OF CONTENTS

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Title page = = = = = = = = = i

Approval page = = = = = = = = = ii

Declaration = = = = = = = = iii

Dedication = = = = = = = = iv

Acknowledgement = = = = = = = v

Abstract = = = = = = = = = vi

Table of content = = = = = = = = vii

List of table = = = = = = = = viii

CHAPTER ONE: INTRODUCTION

1.1 Background of Study = = = = = = = 2

1.2 Statement of Problem = = = = = = = 3

1.3 Objectives of Study = = = = = = = 4

1.4 Research Questions = = = = = = = 4

1.5 Hypothesis Formulation = = = = = 5

1.6 Significance of the study = = = = = = 6

1.7 Scope of the Study = = = = = = 7

1.8 Limitation of the Study = = = = = = 8

1.9 Definition of Terms = = = = = = = 9

References

CHAPTER TWO

2.1 Review of Literature = = = = = = = 12

2.2 The Concept of Budgeting = = = = = = 13

2.3 Benefits of Budgeting = = = = = = = 16

2.4 Type of Budgeting = = = = = = 18

2.2.1 Fixed Budget = = = = = = = = 18

2.2.2 Flexible Budget = = = = = = = 19

2.2.3 Master Budget = = = = = = = 20

2.2.4 Functional Budget = = = = = = = 21

2.4 Approaches to Budgeting = = = = = = 25

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2.4.1 Zero-based Budgeting (ZBB) = = = = = = 25

2.4.2 Planning, Programme and Budgeting System (PPBS) = = 27

2.4.3 Rolling of continuous budgeting = = = = = 28

2.4.4 Tool for effective budgeting = = = = = = 29

2.5.1 Budget committee = = = = = = = 30

2.5.2 The Accounting Staff = = = = = = = 32

2.5.3 Budget manual = = = = = = = 32

2.6 Management Planning through Budgeting = = = = 33

2.7 Profit Planning Process = = = = = = 34

2.8 The Budgetary Control Process = = = = = 36

2.8.1 Establishment of standards as the basis for control = = = 41

2.8.2 Measurement of performance = = = = = 41

2.8.3 Comparing performance against standard = = = = 42

2.8.4 Corrections of in favourable deviations = = = = 42

2.9 The human aspect of budgeting and budgetary controls = = 43

2.10 Possible Limitations of Budgeting = = = = = 44

2.11 Stages in the Budgeting Process = = = = = 44

2.12 Assembling the Master Budget for a Manufacturing

organization = = = = = = = 46

Reference

CHAPTER THREE: METHODOLOGY

3.0 Introduction = = = = = = = = 49

3.1 Research Design = = = = = = = 49

3.2 Sources of Data = = = = = = = 50

3.3 Primary Sources = = = = = = = 50

3.4 Secondary = = = = = = = 50

3.5 Population of Study = = = = = = = 51

3.6 Determination of Sample Size = = = = = 51

3.7 Sampling procedure = = = = = = 52

3.8 Questionnaire administration = = = = = = 52

3.9 Questionnaire administration schedule = = = = 52A

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3.9 Method of analysis and hypothesis testing = = = = 53

CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS

4.0 Introduction = = = = = = = = 55

4.1 Presentation of Data and Analysis = = = = = 55

4.1.1 Question on Personal data = = = = = = 56

4.1.3 Whether the system of budgeting provides a formal budget = = 58

4.1.4 Whether the Responsibility of Every Individual is Defined = = 58

4.1.5 Whether the Budget is a performance Evaluator in your company = 59

4.1.7 How does your company respond to deviation = = = 60

4.1.8 The Type of Budgeting Operated = = = = = 62

4.1.9 Whether the Budget is a tool for measuring efficiency in the company = 63

4.1.10 Whether the Budget is relevant to management in decision making = 64

4.1.11 Is the budget a tool for measuring efficiency in your company = 66

4.1.12 Whether the system budgeting provide a formal budge = = 71

4.1.13 What the survival of your company depends on contingency table = 76

CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND

CONCLUSION

5.0 Introduction = = = = = = = = 80

5.1 Summary of Finding = = = = = = = 80

5.2 Recommendation = = = = = = = 82

5.3 Conclusion = = = = = = = 83

Bibliography

Questionnaires

LIST OF TABLES

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4.1 Question on Personal Data = = = = = = 56

4.2 Question on the existence of a system of budgeting = = = 57

4.3 Whether the System of Budget provides a formal Budget = = 58

4.4 Whether the responsibility of every individual is defined = = 58

4.5 Whether there is a Budget Committee = = = = 59

4.6 Whether Annual Budgets are always acceptable to all levels of staff 60

4.7 The type of Budget being operated = = = = = 62

4.8 Usage of the Annual Budget = = = = = 63

4.9 Adherence to budget provision = = = = = 64

4.10 Evaluation of budget implementation = = = = 65

4.11 Whether the budget is a tool for measuring efficiency = = 66

4.12 The usefulness of budget to management in decision making = 67

4.13 Whether effective budgeting and budgetary planning and control

Contribute to the success of the organization = = = 68

4.14 Whether budgets make profit planning and progress possible = 69

4.15 Whether the survival of the company depend on effective budgetary

planning and control = = = = = = 70

4.16 Whether budgetary planning and control contribute to the success of the

organization = = = = = = 71

4.17 Data analysis and testing of hypothesis = = = = 72

4.18 Testing of hypothesis = = = = = = 73

CHAPTER ONE

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1.0 INTRODUCTION

The success of every organization depends largely on

effective planning and control. Planning and control are pre-

conditions for the attainment of organizational goals. The

objectives of organization are realized through a careful plan of

action and control. Both public and private organizations are

established for the purpose of achieving specific objectives.

Budgetary planning and control are managerial functions

responsible for setting specific targets or expectation to be

met. Budgeting is not only a management planning device but

also a basic accounting model for managerial control. In

manufacturing firm, planning and control are used to set

profit target, revenue, prices and cost.

Hence, planning is the process of deciding ahead of time,

what a firm seeks to achieve and how it seeks to achieve them.

Planning is future-oriented. Control on the other hand, is the

evaluation of performance and the putting in place of

corrective measure where necessary. Control seeks to compare

plans with actual goal realized. Control entails restrain,

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supervision, safeguarding, checking or even to correct

deviations.

1.1 BACKGROUND OF THE STUDY

In a manufacturing industry, and other business

organization, top or line managers are faced with problems of

limited resources due to organization policies. Such policies

may include income and expenditure policies, raw material

utilization policy, purchasing policy, production policy, labour

and time limit policies, it is viewed against the above

mentioned background that the concept of budgeting as a tool

for planning and control is pertinent. It is about making plans

for future, implementation, and monitoring of activities to see

whether it conforms to the plan.

Budget is thus, a formal expression of managerial plan in

quantitative and monetary terms encompassing different

phases of operation aimed at assisting management in the

realization of organization‟s objectives. Budgeting is a financial

and quantitative interpretation, prior to a defined period of a

policy to be implemented in order to achieve a given objective.

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1.2 STATEMENT OF THE PROBLEM

Generally, organizations are faced with limited resources

and the allocation of scarce resources to meet competing

needs. The problem bedeviling most organization is how the

available scarce resources can be allocated effectively and

efficiently to achieve organizational objectives.

The problem therefore, is most manufacturing firm do

not appreciate the relevance of budgetary planning and control

for its survival.

Another glaring issue is the attitude of employees toward

budget implementation. Budgeting may create a sense of

confusion, frustration, suspicion and even hostilities within

organization because employees regard the goals of the

organization as alien to their individual goal.

Most often, government establishment feel that budgeting

is a mere paper work that can be toyed with, thus, most

management executive do not adhere strictly to the budget or

implement it religiously. While many private firms feel that

there is no enabling law binding on them to prepare a budget.

This often makes them to operate without a formal budget.

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1.3 OBJECTIVES OF THE STUDY

The objectives of this study shall include:

1) To ex-ray the relevance of budgeting as tool for

planning and control in manufacturing firm.

2) To ascertain the possible effect of non-existence of

budget on the performance of business organization.

3) To create an opinion as to whether budgeting is

actually an effective tool for profitability planning and

management control.

4) To ascertain the extent to which budgetary planning

and control aid management in decision making.

1.4 RESEARCH QUESTIONS

The following research questions are formulated for the

study.

i. To what extent does the private sector appreciate the

relevance of budgetary planning and control?

ii. What is the attitude of employees towards budget

implementation?

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iii. How can budgeting be used as a performance

evaluator?

iv. What are the problems involved in the implementation

of budget?

1.5 HYPOTHESIS FORMULATION

The success of this research work depends on the

formulation and testing of hypothesis and the drawing of

conclusions from it. The hypothesis is as follows:

HYPOTHESIS I

Ho: Budgeting is not a tool for measuring efficiency

and performance in manufacturing firm.

Hi: Budgeting is a tool for measuring efficiency

and performance in manufacturing firm.

HYPOTHESIS II

Ho: That successful business organization does not

make use of formal budget as management tool.

Hi: That successful business organization make use of

formal budget as management tool.

HYPOTHESIS III

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Ho: Effective budgetary planning and control is not

relevant for the survival of manufacturing

companies.

Hi: Effective budgetary planning and control is relevant

for the survival of manufacturing companies.

1.6 SIGNIFICANCE OF THE STUDY

The significance of this study is that if the

aforementioned objectives are achieved, this research work will

enable managers and employees of organization to appreciate

the relevance of budgeting as a control tool for performance

evaluation and measurement.

The study will also aid top management of business

organization to work out effective strategies to surpass

corporate failure.

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Resources to competing alternatives in order to meet

organizational goals, small business will be able to evaluate

performance and correct deviation where necessary.

1.7 SCOPE OF THE STUDY

This research work shall focus on the “relevance of

budgeting as tool for planning and control in manufacturing

companies”.

In carrying out this study, the researcher focused

attention only on a particular manufacturing firm, even

though, there are many others. In Nigeria since the searcher

could not visit all the manufacturing firms, he limited the

scope of his study only on Nigeria Bottling Company, Enugu.

The decision to study the relevance of budgetary

planning and control about Nigeria Bottling Company was

borne out of its international outlook. It has gained goodwill in

its operating environment in spite of the notable nature of

Nigeria‟s economy; it has been surviving for many years

amidst many competitors. Therefore, references to any other

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business organization are just for the sake of clarity and

emphasis within the scope.

1.8 LIMITATION OF THE STUDY

In the course of carrying out this research work, the

researcher encountered a lot of hurdles. Many organizations

are not willing to disclose detail information relating to their

business operations. This affected the collection of reliable

information.

Financial constraint also affected the researcher since

much is needed for transportation and the procurement of

materials.

The time frame was not also enough to complete a

research of this magnitude since the researcher was also

involved in his course work, and other official work.

1.9 DEFINITION OF TERMS

1. Budget: A budget is a plan quantified in monetary

terms prepared and approved prior to a defined period

of time, usually showing planned income to be

generated and expenditure to be incurred during that

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period and the capital to be employed to attain a given

objective.

2. Budgeting: This is the process of making future plan

of action formulated by management for the whole

organization or a section, expressed in monetary

terms.

3. Budget manual: Budget manual is an instruction or

information manual about the way budgeting operates

in a particular organization and the reasons for having

budgeting.

4. Planning: Planning is the selection of short and long

term objectives and the drawing up of tactical and

strategic plans to achieve those objectives.

5. Efficiency: This is the minimum cost of input required

to produce a desired amount of output.

6. Effectiveness: This is the extent to which actual

performance compares with targeted performance.

7. Economic Order Quantity (EOQ): This is the size that

minimizes the sum of carrying and ordering cost.

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8. Cost Centre: This is any location, person or items or

equipment for which costs may be ascertained and

used for the purpose of cost control.

9. Profit: This is the difference between revenue and

cost.

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REFERENCES

Vincent Onodugo, et al, (2010): Social Science Research,

Principles, Methodss and Application Uwani, El Demark Publisher.

Adeniyi A. Adeniji (2001): An insight into Management

Accounting, Lagos, Value Analysis Consult.

S.N. Kodjo (2009): Decision Accounting for managers, Enugu, De-Adroit Innovation.

Kayode O. Fasua (2010): Manual on Public Sector Accounting,

Jos Laringraphics Press.

Lucey T. (1996): Management Accounting; London, Adine House Publication.

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CHAPTER TWO

2.1 REVIEW OF RELATED LITERATURE

Every action is motivated by human need and wants and

the means of achieving the needs. The effective and efficient

allocation of scarce resources to achieve organizational

objectives is a great challenge to business organization. It is on

the heels of allocating scarce resources to various competing

alternatives that the concept of budgeting emerged. Business

organizations have different goals and objectives. The primary

goals of some business organization revolve round profitability

liquidity, market dominance and social contribution to the

economic and social well-being of the business environment.

Similarly, non profit making organizations like Federal, State,

Local Government and non governmental organization or

establishment also have their specific objectives articulated in

a well defined manner.

This topic, budget, has attracted the attention of many

scholars. Frantic effort has been made in analyzing its roles,

importance, principles, problems and the way forward.

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2.2 THE CONCEPT OF BUDGETING

The concept of budget has drawn the attention of so

many authors and scholars. According to Adeniyi (2001), “a

budget, is a plan quantified in monetary terms prepared and

approved prior to a defined period of time usually showing

planned income to be generated and or expenditure to be

incurred during that period and the capital to be employed to

attain a given objective”, it is the process of preparing detail

short term plans for the functions, activities and department

of organization, thus converting the long-term corporate plan

into action.

Horn (1982) defined budget as the estimate of probable

future income and expenditure, especially, that made by

government. To him, budget is an official statement by the

government of a country‟s income from tax and how it will be

spent.

According to Egbonu (1998), budgeting is defined as a

formal expression of managerial plans in quantitative and

financial terms encompassing different phases of business

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operation and aims at helping management towards the

attainment of organizational objectives, it has the following

ingredients:

i. It is a plan of action.

ii. The plan is stated in quantitative or financial

terms.

iii. It is prepared prior to a defined period of tie for

the control of performance.

iv. It integrates the resources and costs of an

organization to plan for the anticipated level of

performance.

v. It is directed towards the attainment of

organizational goal.

A budget is the financial translation of policy objectives,

in terms of anticipated revenue and expenditure, within a

given period of time, usually a year; it could be annually,

quarterly, monthly and even weekly for review and control

purposes.

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Budgeting is one of the parameters which ensure the

actual achievements of people, departments, ministries and

firms.

No wonder, Akin (1990) defined budget as “a means of

tabulating the projected inflow and outflows of any

organization in order to map out the plans to be achieved at a

specified period of time.

Budget takes a comprehensive financial plan, setting

forth the expected routs for achieving the financial and co-

operate goal of an organization. Budgeting is an essential step

in effective financial planning. Planning is the process of

deciding which objectives to pursue within a specific future

time period and how to achieve those objectives. Planning at

any level in an organization is primarily concerned with the

future implications of current decisions rather than with

decisions to be made in the future. Planning exists at all level

of management, including strategic, tactical and operational

level. Therefore, effective budgeting should be directed towards

the various level of management, departments and sub units

to achieve goal congruency.

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2.2 BENEFITS OF BUDGETING

The survival of business organization depends on

effective budgeting system. The complexity and dynamism of

business environment necessitated the emergence of

budgetary control. Budgeting is an economic tool designed to

put organization in the proper pedestal. Therefore, the role of

budgeting includes:

Budgeting is a formal framework of formulating the

strategic corporate objectives of organization. It is the basis for

formulating the long term goal of organization. It is on this

basis that Gordon (2005) defined budget, “as the corporate

compass of an organization”. He asserted further that, any

organization without a formal budget is like a ship without a

rudder”.

Budgeting enhances the evaluation of performance. The

performance of various departments and sub-units can be

evaluated with ease. The measurement of departmental

performance can be ascertained and corrective measures

made where possible.

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It shows the expected costs and expenses for each

department as well as the expected output. It is the yardstick

for measuring performance.

It helps to co-ordinate and integrates the efforts of

various departments in line with overall objectives of the

organization, this result in goal congruency.

It facilitates control by providing definite expectation in

the planning phase that can be used as a term of reference for

judging performance.

Budget improves the quality of communication. The

overall objectives, goal, line of authority and responsibility and

the process of plan implementation are clearly written and

defined in budget. This clarifies doubt and promotes better

understanding between managers and subordinates.

Budget is a managerial control tool that reveals weakness

in organization, it fixes responsibilities in organization. It

compels all members of management to participate in the

formulation of goals and objectives.

Budgeting reduces the likely-hood of fire-fighting

approach to decision making.

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It helps to save management time through the use of

exception principle, which is the heart of budgetary control.

2.3 TYPES OF BUDGET

The planning and controlling functions of organization

are realized through budgeting. Basically, the classification of

budgeting is a contentious issue. For the purpose of this

research work, budget could be fixed, flexible, master budget

as well as functional budget.

2.2.1 FIXED BUDGET

This type of budget relates to one level of activity on

which all costs are attached. Thus, materials, labour cost and

overhead costs are related to one level of activity.

It is on that premise that Lucy (1988) defined fixed

budget as “one which is designed to remain unchanged

irrespective of the volume of output on turnover attained”.

Fixed budget is a single budget that has no provision for

adjustment should actual activity varies. Fixed budget is not

very applicable in an unstable economy because it cannot

stand the test of time.

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2.2.2 FLEXIBLE BUDGET

Flexible budget recognizes the different behavioural

pattern of costs in relation to the various output levels; it

assumes that cost of labour, material and other materials

used in production vary in accordance to changes in the levels

of activity.

Lucy (1976) defined flexible budget as a budget designed

to adjust the budgeted cost levels in line with the actual levels

attained. According to him, flexible budget analyses each item

of expenditure in the budget into fixed and variable elements.

It thus, recognizes the different costs in relation to

fluctuations in output or turnover designed to change

appropriately with such fluctuation.

According to ICAN (1996), where flexibility is allocated in

the overhead budget, then it is the overhead allowance for

actual output which should be compared with actual

overheads of the period for the purpose of variance analysis.

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2.2.3 MASTER BUDGET

This budget is prepared by incorporating all the

departmental summaries. In the private sector, the master

budget is represented by a firm‟s projected financial

statement, especially the profit and loss account and the

balance sheet.

The master budget is usually divided into two sections as

follows:

(i) CAPITAL BUDGET:

This budget is meant to take care of capital project.

According to Warren and Fess (1986), capital expenditure

budget summarises future plan for acquisition of planned

facilities and equipment. Capital budgeting is a long-term

planning for proposed capital outlays and their financing.

(ii) RECURRENT BUDGET:

Recurrent Budget is made up of recurrent revenue and

recurrent expenditure. It is meant to cover estimates on

yearly basis.

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2.2.4 FUNCTIONAL BUDGET

This type of budget is a subsidiary to the master budget,

it is all the sum total of the component functional budgets that

make up the master budget, it relates directly to the functional

areas of organization.

A typical manufacturing organization has the following:

(i) Sales budget.

(ii) Production Budget.

(iii) Direct Labour Budget.

(iv) Direct Material Budget.

(v) Purchasing Budget.

(vi) Capital Expenditure Budget.

(vii) Cash Budget.

(viii) Administrative Budget.

1. SALES BUDGET

This is a statement of planned sales in terms of quantity

and value, and analysed by product. Lucey (1996) states that

for many organizations, sales volume is the principal factor so

that sales budget becomes the primary budget from which the

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majority of the other budgets are derived. It is necessary to

make a sales forecast before sales budget can be developed.

2. PRODUCTION OVERHEAD BUDGET

Production Overhead Budget shows the quantity and cost

involved in producing each product. According to Ibitoye

(1995), production budget is a schedule or a “statement of

output in units analysed by products. The output can also be

expressed in terms of standard cost. The Institute of cost and

Management Accountants (ICMA) defined production budget

as the quantity of work achievable at standard performance

expressed in terms of standard unit of work in a standard

period based on sales budget. This takes account of the sales

and production policy so that the sales target can be forged

with the production capacity of the factory.

3. DIRECT LABOUR BUDGET

The labour budget according to Brown and Howard

(1992), “it represents the forecast of direct and indirect labour

requirement to meet the demands of the company during the

period, this budget need to be linked to the production budget.

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Each product specification will give a clear view of the

operation involved, types of labour required and number of

hours allowed to complete the finished product.

4. DIRECT MATERIAL BUDGET

The production department determines the quantity and

type of materials to be used for the manufacturing of various

company products. In most companies, there is a standard

part list and bills of material that give the detail material

requirement of production.

5. PURCHASING BUDGET

The purchase of direct material is a function of the level

of opening inventory, and the desired closing inventories. The

units of materials to be purchased are determined by the

material usage budget plus desired closing inventories less

opening inventories (materials) equal‟s purchases in units.

Hence, it is these units that are budgeted for.

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6. CAPITAL EXPENDITURE BUDGET

Capital Expenditure Budget refers to the estimated

expenditure on fixed assets during a budget period. According

to Onyia (1998), capital expenditure budget is used

interchangeably with capital budgeting or investment decision.

He defined capital budgeting as an investors action to commit

his current funds to long term assets from which he expects

returns over the projected period of investment.

7. CASH BUDGET

Cash Budget indicates the expected cash inflow and the

expected cash outflow. It is a decision making tool that enable

management to plan for optimum and best use of cash.

Glauetr and Underdown (1987) noted that, “cash budget is a

complete survey of the financial implications of expenditure

plan of both current and capital nature during the year. Cash

budget shows a surplus or deficit cash. But on the whole, cash

surplus is an indication of improper use of cash.

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8. ADMINISTRATIVE BUDGET

This budget collects the cost of all administration

expenses such as salaries, wages, supplies, dues,

subscription, telephone expenses, traveling expenses, rent,

postage, depreciation etc. Most of these expenses are fixed

within defined limits so that when it is excessive, investigation

follows

2.4 APPROACHES TO BUDGETING

It is pertinent to point out that properly planned

conventional budgeting system is important to the well-being

of organization. The condition is not stable because of macro

economic variables that impact either positively or negatively

in business activities. The above Scenario calls for a careful

approach to curb the unforeseen in the budgeting system with

the following.

2.4.1 ZERO-BASED BUDGETING (ZBB)

According to Lucey (1996), Zero based budgeting is a cost

benefit approach whereby it is assumed that the cost

allowance for an item is zero and will remain so until the

38

manager responsible justifies the existence of the cost item

and the benefit the expenditure brings. Each cost item and its

level has to be justified in relation to the way it helps to meet

the objectives of the organization.

ADVANTAGES OF ZBB

The advantages of zero based budgeting approach

includes:

a) It enhances the efficient allocation of resources to

various unit and departments.

b) The concept of value for money is effectively

utilized.

c) Inefficiency, obsolescence and ineffectiveness are

easily identified.

d) Staff and Management are well informed of the

operations and activities of organization.

39

DISADVANTAGES

The disadvantages include:

a) Its assumption that economic conditions are constant

does not give room for flexibility. This makes it

impossible to deal with changes.

b) It is time consuming.

c) Lack of management and staff co-operation.

d) It may emphasize short-term benefits to the detriment

of long-term benefits.

2.4.2 PLANNING, PROGRAMME AND BUDGETING

SYSTEM (PPBS)

This budgeting approach is programme oriented; it is a

new comprehensive system of budgeting used in USA and UK.

This is an analytical tool used for assisting management in the

analysis of alternatives as a basis for rational decision making.

Planning, programme and budgeting system provides

regular procedures for reviving goals and objectives, for

selecting and planning programme over a period of years in

terms of output and resources.

40

FEATURES OF PPBS

a) Identification of goals and objectives in each

major units and departments.

b) Analysis of the output of a given programme in

terms of its objectives.

c) Formulation of objectives and programmes

extending beyond the single year at the annual

budget.

d) Analysis of alternatives to find the most effective

means of reaching basic programme objectives.

2.4.3 ROLLING OF CONTINUOUS BUDGET

Rolling budget is defined as the continuous updating of

short-term budget by adding, say, a further month or quarter

and deducting the earlier month or quarter so that the budget

can reflect current conditions. For example, a six month

budget for January – June 2012 will be isolated at the end of

January by preparing February - July 2012 and at the end of

February, March – August will be prepared so that each time

there is a six month budget. This approach absorbs

41

inflationary trend and frequent unexpected changes. But its

implementation is rigorous.

DISADVANTAGES OF ROLLING BUDGET

a) Because budgets are usually updated, the adverse

effect of inflation and other forecasting problems are

eliminated to the barest minimum.

b) Comparison between budgeted and actual figure

become more realistic and reasonable.

DEMERITS

a) It is time consuming and expensive.

b) It requires highly trained manpower.

c) There is much paper work as budgets have to be

prepared continuously.

2.4 TOOL FOR EFFECTIVE BUDGETING

According to Drury (1992), tools for effective budgeting

includes the establishment of budget committee, appointment

of budget officers or director, provision of a budget manual

and the use of accounting staff as well as line staff.

42

2.5.1 BUDGET COMMITTEE

Normally, a budget officer is appointed to be in charge of

budgetary arrangement in a small business organization.

Provision is made for consulting managers or managing

directors or some other executives on any special problems

which may occur relating to preparation, administration, and

control of larger organization, budget committee is formed. In

a manufacturing company, the committee would comprise the

managing director or manager as chairman, the sales

manager, the accountant, the factory/production manager,

the administration manager and any other person. The

composition of budget committee is relative depending on

individual company and circumstances. But, it is advisable to

include staff of other departments such as advising manager,

the chief engineer, the purchasing agent, transportation

manager and one or two sectional factory superintendent or

foremen as direct representative of the employees.

All matters of general importance regarding the various

budgets are decided upon by the budget committee.

43

BUDGET OFFICER OR DIRECTOR

The roles of budget officer or director include the following:

a) To arrange for all meetings of budget committee.

b) To arrange for preliminary programme and compilation

of various departmental budgets.

c) To make available any information that is essential for

budget preparation.

d) To prepare schedule showing when each of the

estimates will be required, to collect the estimates on

the due dates and co-ordination amongst departments.

e) To produce complete master budget and the balance

sheet for submission to the budget committee.

f) To prepare necessary summaries of the final results

and forwarding same members of the budget

committee.

g) To make the necessary revisions which may have been

decided upon by the budget committee or the final

reviewing executives and to transmit the various

budgets back to the departmental heads where

necessary.

44

h) To make details explanation, where necessary of an

important variation between estimated and actual

results.

2.5.2 THE ACCOUNTING STAFF

The importance of the accounting staff in the preparation

of budget is addressed by Drury (1992) when he stated that

accounting staff will always assist managers in the

preparation of their budget. Accounting officer circulate and

advise on the preparation of budget, provide past information

that may be useful for preparing present budget and ensure

the timely submission of budget.

2.5.3 BUDGET MANUAL

According to Lucey (1996), “it is important that a budget

manual is produce so that everyone in the organization can

refer to the manual for guidance and information about the

budgeting process”. The budget manual does not contain the

actual budget for the ensuring period but is more of an

instruction and information on the operations of budgeting in

a particular organization.

45

2.6 MANAGEMENT PLANNING THROUGH BUDGETING

The fundamental purpose of management planning is to

provide a feed-forward process for operations and control. The

concept of feed forward in planning is to give each manager

guidelines for making operational decision on day to day basis.

Planning is vested upon the view that the future success

of an entity can be enhanced by continuous management

action, it presupposes that an entity will be more successful,

in terms of its broad objectives. Management planning is a

continuous process because a planned projection can never be

considered final and ultimate product. Plan must be revised as

conditions change and new information becomes available.

The table below shows a brief illustration:

Adopted from: Adeniyi Adeniji, insight into management

Planning

Designed

Objectives and

goals, strategic,

Tactical

Fee

d F

orw

ard Operations

Actual activities

Transformation

of resources.

Mea

sure

men

t

and

Eval

uat

ion. Control

Actual/Planned

Performance

Compared.

Replanting Feedback

46

2.7 PROFIT PLANNING PROCESS

Ralph Lewis in his planning and control for profit (1974)

states that “No matter how busy management may be, the

bulk of time should be spent on profit planning for the future.

One of the most important approaches that has been

developed for facilitating effective performance of management

is profit planning.

According to Glueck, planning is a set of managerial

activities designed to prepare the enterprise for the future and

to ensure that decisions regarding the use of people and

resources (means) to achieve the company‟s objectives (ends)

are made.

There are many steps to be taken in profit planning, viz:

1) Establishing the appropriate objectives:

objectives here, cover targets of profit expected

from company activities, not sales revenue or

cash-flow, it is always important to take note of

past trends and use it for forecast.

47

2) Establishment of job responsibilities: Jobs

should be broken down in such details that

managers should know the unit of their

managerial decision.

3) Establishment of base data: Sometimes, the

data for profit planning are not in existence or set

out in a way that is not good for the purpose.

There is thus, the need to have a solid data base.

4) Carrying out of situation Audit: This involves

an audit of all the factors (both exogenous and

endogenous) that influence the company‟s affairs.

This includes the establishment of competent

skills and the economic situation that will

impinge on company performance.

5) Establishment of appropriate control system:

Planners should not loose sight of the cost

control in their planning. The budget should set

out standard of performance so that the

company‟s activities will be tailored to that level.

48

6) Variance analysis: This is analysis of the

difference between actual and budged. Most often

problem arises in companies because the

variance was not determined and analysed in

good time.

The diagram below shows a graphic picture of

profit plan.

DEVELOPING PROFIT PLAN

ACTIVITY INFORMATION FLOW

APPROVAL SEQUENCE

PRIMARY PARTICIPATION

Entity Objectives Board of directors, CEO

Entity Goals Planning premises

And Strategies

Top Management

Strategic (long

range) Profit Plan

Middle Managers

Tactical (short

range) Profit Plan

Operating

Managers Source: Adeniyi A. Adeniyi: Insight into Management Accounting.

2.8 THE BUDGETARY CONTROL PROCESS

Budgetary control, according to Obi (2000) is the whole

process of monitoring actual performance and comparing

same with the budget to ensure the attainment of the overall

49

budget objectives. It involves feedback of information on

performance compared with the budget.

Institute of cost and management Accountant (1981)

defined budgetary control as the establishment of 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 actions the

objectives of that policy or provide a basis for its revision.

Budgetary control according to Lucey (1996) follows the

classical control cycle whereby each period, usually monthly,

the actual costs and the difference or variances are

highlighted.

Budgetary control is an example of management by

exception where attention is directed to the few items which

are not proceeding to plan. The usual method of feedback is

through budgetary control report to the manager concerned.

The main aim of budgetary control is to provide a formal

basis for monitoring the progress of the organization as a

whole and the objective specified in the planned budget, it

50

provides feedback information necessary to be able to make

corrections to current operation and activities.

Onah (1981) maintained that control budgets should be

for very short periods e.g a day, week, month or quarter,

depending on the nature of the business within a budget

period of say 4 years.

Hence, budgetary control process revolves round three

planning levels namely Level 1: Strategic level; this level is

normally concerned with the overall goals of the organization

on a more or less long-term basis. Top management is usually

directly involved and the formation of budget committee.

Its specific functions include:

Decoding on general policy objectives.

Requesting, receiving and studying units and

departmental budgetary estimates.

Suggesting revision.

Receiving and analyzing budget performance reports.

Approving the budgeting(s).

Recommending corrective action.

51

Level 1: Strategic level: It is pertinent to point out that the

budget committee is indispensable in budget control

process; its primary concern is with the total or

master budget.

Level 2: Tactical Level: This level is concerned with middle

management which has to do with the efficient and

effective management of resources to achieve

corporate goals.

Level 3: Operations-Planning and control level: The level has

to do with actual day to day work performed. In

practice a lot of flexibility is required by supervisors

in applying controls and sanction specified by

management. The feature of budgetary control is

illustrated in the diagram below:

52

FEATURES OF BUDGETARY CONTROL SYSTEM

Sources: S.N. Kodjo: Decision Accounting for managers.

Basically, Massie and Doug…. (1973) posited that

controlling process is made up of four definite steps which

must be applied regardless of the activity being managed.

These are:

1. Establishment of standard.

2. Performance measurement.

3. Comparing performance with standards.

4. Correcting information deviations from

standards.

The Master

Budget

(Feedback)

Operating leading to

presentation of report

Feedback

Instruct

further

action

Complying

to instruction

Budget to

be revised

Is further

action

required

No Decision

action Yes

53

2.8.1 ESTABLISHMENT OF STANDARDS AS THE BASIS

FOR CONTROL

Standards are criteria against which actual results can

be measured. They represent aspects of short-range plan.

Lucey states that standard specifies the expected performance.

The establishment of standard is actually a planning activity,

whose operation spans between planning and controlling.

Standard setting includes quantity, quality, budgets and

objectives.

2.8.2 MEASUREMENT OF PERFORMANCE

Koontz and O. Donnell (1980) states that measurement of

performance against standard is not often predictable while

Massie and Douglas (1973) said that all measurement is

accurate only to a limited degree. Koothz and O. Donnell thus

opined that performance measurement should ideally be on

future basis and anticipatory so that deviation may be

detected in advance. It depends so much on supervision and

is a function of the abilities and skills of the subordinates, the

54

expertise of the superior and the nature of the work

environment.

2.8.3 COMPARING PERFORMANCE AGAINST

STANDARD

This focuses on determining the amount of agreement between

established standard and actual result. The analysis can take

place at or away from the point of operation. The purpose is to

determine whether deviations from standard has occurred,

whether these conditions should be brought to management‟s

attention. Sometimes, comparison may involve historical

events.

2.8.4 CORRECTIONS OF INFAVOURABLE DEVIATIONS

This is the final element in the control process. When

standards have been established and supervision effectively

carried out, and deviation detected after comparison, then

correction of deviation is expected. Corrective actions are

basically from planned performance or the altering of future

performance criteria, i.e. changing of standards. It is

important for managers to develop, analyze and choose among

55

alternatives approaches to overcome these deviations. The

diagram below is an illustration of the above.

THE CONTROL PROCESS

Source: William F. Gluck (1980): Management, Hindsdelle Illinois: Dryden Press

2.9 THE HUMAN ASPECT OF BUDGETING AND BUDGETARY CONTROLS

All organizations are made up of people who will perform a

multitude of activities in pursuit of the organization‟s goals

and objectives. This reaction deals in matters relating to:

- Negative perception of the budget.

Setting the

objective Establishing

Predictors of

the objectives

Establishing

Standards of

performance Evaluating

results against standards

Action to reinforce

and correct the

negative Result

56

- Attitude of top and middle level management, and

- Motivation.

2.10 POSSIBLE LIMITATIONS OF BUDGETING

These limitations may include the following:

- No budgeting system can replace the need for supervisory

executive ability in major decisions.

- Volatile environment

- Places great demand on management time.

- Lack of adequate and realistic data for proper budgeting.

- Persistent increase in the level of inflation.

- Revenue and expenses may be difficult to estimate.

- Political instability and economic depression.

2.11 STAGES IN THE BUDGETING PROCESS

Budgeting process take different process as follows:

Stage I: This involves communicating details of budget

policy and budgets. Top management must

formulate a long range plan as the genesis of

preparing annual budget.

57

Stage II: This involves determining the factors that may

restrict performance.

Stage III: Preparation of the sales budget. Sales budget is the

most important plan in the annual budgeting

process. This is because the volume of sales and

sales mix determines the level of a company‟s

operation.

Stage IV: Initial preparation of budget. The managers who are

responsible for meeting the budgeted performance

should prepare the budget for the areas for which

they are responsible. The budget should originate at

the lowest levels of management and be refined and

co-ordinated at higher levels (i.e, bottom-up

process).

Stage V: Negotiation of budget: In participative approach to

budget, budgets are prepared at lower level and

submitted to superior for approval. The superior will

then incorporate the budget with other budget for

which he is responsible and then submit this

budget for approval to his superior. At each stage

the budget will be negotiated between subordinates

and superior before arriving at consensus.

Stage VI: Co-ordination and review: To individual budget

moves up the organization hierarchy in the

58

negotiation process they must be examined in

relation to each other to ensure that each balances

with each other. Where they do not, modification

will be needed so that they will be compatible with

other conditions.

2:11 ASSEMBLING THE MASTER BUDGET FOR A MANUFACTURING ORGANIZATION

Source: Morse, Wayne J. and Roth, Har……. S(1986) cost Accounting publishing company.

CURRENT BALANCE SHEET

SALES BUDGET

UNITS AND NAIRA

PRODUCTION

BUDGET UNITS

SELLING AND ADMINISTRATIVE

EXPENSE

BUDGET

MANUFACTURING

COST BUDGET

PURCHASES BUDGET

UNITS AND NAIRA

CASH

BUDGET BUDGET

INCOME STATEMENT OF

RETAINED

EARNING

BUDGETED BALANCED

SHEET

59

REFERENCES

Oshisami K. (1992): Government Accounting and Financial

Control, Ibadon spectrum book Ltd.

Horngren, Charles T. (1987): Accounting for Managerial Control.

Obi, O.J. (2000): “Management Account” Onitsha, Adson

Educational Publisher P.

Pandy I.M. (1979): Financial Management, New Delhi, Vikas Publishing House PVT Ltd.

Morse, Wayne J. and Roth, Harold (1986): Cost Accounting

Processing, Evaluating and using Cost data, Califonia, Addison Wesley Publishing Company.

Hongren, Charles (1977): Cost Accounting; London, Prentice

Hall

Onya A.C. (1998): Business Finance in Nigeria Enugu, Hugotez Publication.

ICAN (1996): Distant Learning Pack: Management Accounting,

Lagos Nigeria-Accountancy Training and Publication Ltd.

Ibotoye, Simeon O. (1985): The Hand book of budgetary control Berfordashire Graham Burn Publishing Ltd.

Scott, Waler (1980): Business Budgeting and Budgetary Control

the Law Book Company of Australia PTY Ltd.

MCAL Pine, I.S. (1981): The Basic arts of Budgeting; London, Business Books Ltd.

60

Ona, J.O. (1981): Management Practice in developing

communities; London Cassel Ltd.

Drucker, Peter P. (1974): New Templates for today’s organizations, Harvard Business Review.

Osisioma B.C. (1984): Traditional Control System an

Accounting Emphasis. Lucey T. (1989): Costing, DP Publications.

CIMA (1991): Management Accounting; Official Terminology.

Horugren C.T. (1977): Cost Accounting: A managerial

Emphasis, Prentice Hall.

Glosh B.C. (1980): Fixed Costs in Break-even Analysis Management Accounting.

Kaplan, R.S. and Alkinson A. (1989): Advanced Management

Accounting, Prentice Hall.

Lec T.A. (1986): Income and Value Measurement, Van Nostrand

Reinhold (UK). Johnson G. and Scholes K. (1993): Exploring Corporate

Strategy, Prentice Hall.

Scapens R.W. (1991): management accounting a review of

recent Developments, Macmillan.

61

CHAPTER THREE

METHODOLOGY

3.1 RESEARCH DESIGN

This chapter deals in method and procedures used in

data collection and analysis in the research work. These

procedures include the description of the research design,

Areas of study, Sources of data, development of the survey

instrument, method of data collection and analysis.

3.2 POPULATION OF THE STUDY

The population of the study comprises the member of

staff of the Account department, personnel department, other

top management staff and heads of department of the Nigerian

Bottling Company, Enugu.

3.3 SAMPLE OF THE STUDY

The research topic is somehow technical and may require

expert knowledge in the area, to be able to answer the

questions involved. As a result of this, workers were sampled

from the Account department and personnel department as

well as top management staff.

62

3.3.1 SAMPLE TECHNIQUE

The research adopted the selection sampling as well as

stratified random sampling technique. These involve deliberate

and direct selection of specific element of the population,

which serve as the direct sample, sample of thirty workers in

the organization were selected. The sample was made up of

officer of senior and middle management rank. The sample

size covers every aspect of account and personnel department.

3.4 SOURCES OF DATA

The research is designed to use data from both primary

and secondary data.

3.4.1 PRIMARY SOURCES

For the purpose of this research, the primary sources of

data include the following:-

a. Questionnaires

b. Direct interview

c. Observation and inspection

63

lecture notes, magazines publications and public lectures. Others

include lecture, research books in the library, books of Accounts, office

documents etc.

3.5 POPULATION OF THE STUDY

This comprises all the element or otherwise, of Nigerian Bottling company Enugu. It

this, refers to the totality at members of staff of Nigeria. Bottling company, plc. This

study sought to thrown the existence of effective budgetary planning and control in this

manufacturing company. The population of the study comprises members of staff of

Account department, personnel department, production department and other

department which totaled eighty –five workers (85).

3.6 DETERMINATION OF SAMPLE SIZE

This involves the taking of certain percentage of the population for one’s study. The

sample size was determined with a certain percentage at Nigerian Bottling company

plc, Enugu. The Eight-five workers were group at into three departments. Account

department, personnel department and production departments.

The researcher tried as much as possible to eliminate bias sample with questionnaire it

was determined through the use at statistical technique, thus:

a) There is a sample population, which is the total number of staff in

department, sections of Nigerian Bottling company plc, Enugu.

b) The margin of error was also assumed.

c) Then, the sample technique used in determining the size is yaro ainina

formulae.

64

That is,

n = N

1 + N (e)2

Where,

n = sample size

N = population

e = estimated error

I = constant

Assuming, 5% level of significance

When, N = 85

e = 5%

n = 85

1 +85 (0.05)2

= 85

1.21

= 70.2

= 70

3.7 SAMPLING PROCEDURE

The research topic is somehow technical and may require

expert knowledge in the area, to be able to answer the

questions involved. As a result of this, workers were sampled

from the Account department and personnel department as

well as production department.

65

3.8 QUESTIONNAIRE ADMINISTRATION

The researcher administered the questionnaire to the staff himself

with the help of a personnel staff taking care to achieve judicious

representation of all categories of staff. On the whole, 70

questionnaires were distributed at Nigerian Bottling Company.

The distribution was made to staff of various departments

especially Account and Personnel Departments as well as

Production Department.

3.9 QUESTIONNAIRE ADMINISTRATION SCHEDULE

Categories of

workers

No

distributed

No

collected

No not

collected

%

collected

% not

collected

Account dept 25 21 4 30% 5.7%

Administrative

dept

20 16 4 22.8% 5.7%

Production

dept

25 17 8 24% 11.4%

Total 70 54 16 76.8% 22.8

Total response = 78%

Non response = 22%

66

3.10 METHOD OF ANALYSIS AND HYPOTHESIS TESTING

Data collected will be placed in appropriate categories.

Response to the key questions will be tabulated and simple

percentage used to analyse them.

The Hypothesis will be tested using chi-square, that is,

the (x)2 statistical technique.

To execute the test, the first thing to do is to determine

the theoretical or expected frequencies with the formula for the

chi-square (x)2 is

(x)2 = (01-ei)2

ei

Where (x)2 = chi-square

Oi = Observed frequency

ei = Expected frequency

The levels of significance (x) are given in the chi-square table.

The researcher will utilize 5% (0.05) level of significance and

95% (0.95) level of confidence in testing the hypothesis. The

decision rule is:

67

1. Accept null hypothesis (Ho): (x)2 calculated is lower than

the table or critical value.

2. Reject the null hypothesis (Ho): if (x)2 calculated is higher

than the table or critical value.

3. Equally reject (Hi) if (x)2 calculated is lower than the (x)2

table or critical value.

4. Accept (Hi) if (x)2 calculated is higher than the (x)2 table or

critical value at its degree of freedom and level of

significance.

68

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS

4.O INTRODUCTION

This Chapter is primarily aimed at presenting, analyzing

and interpreting the result of the questionnaires and

interviews collected in the course of the research study. it will

likely produce some findings. This will provide data for

research hypothesis testing.

There are other findings from interview and answers to

questionnaires, which cannot be presented in tabular form but

will be discussed in this chapter as well as the subsequent

chapter.

It is hoped that the finding of the study will be obtained

in the end of this chapter. This will make it possible to draw

conclusions. And make recommendation,

4.1 PRESENTATION OF DATA AND ANALYSIS

Tables were used to present the result of respondents followed

by a brief discussion of each result.

69

4.1.1 QUESTION ON PERSONAL DATA

Information was obtained from respondent in some

departments of the organization as well as the number of

years they have worked in the company. Result are presented

in table I below:

DEPARTMENTS NO

DISTRIBUTED

NO

COLLECTED

PERCENTAGE

OF

COLLECTION

MADE

Account Dept. 25 21 30%

Personnel Dept. 20 16 22.8%

Production Dept. 25 17 24%

Total 70 54 76.8%

The above table indicates that 30% of the respondents

are in accounts department while 22.8% are in personnel

department and 24% in production department. 23.2% of the

sample did not return their questionnaires.

All the respondents indicated that they have worked in

the firm for over two years.

70

QUESTION 7: ANALYSIS

4.1.3 WHETHER THE SYSTEM OF BUDGETING

PROVIDES A FORMAL BUDGET

The respondents where required to state whether the system

of budgeting in their organization was formal.

TABLE II

Company’s

respondents

Agree Disagree Strongly

agree

Strongly

disagree

total

Accounts

dept.

8 8 4 1 21

Personnel

dept.

4 9 3 0 16

Production

dept.

13 1 0 3 17

Total 25 18 7 4 54

% Response 46.2% 33.3% 12.9 7.4 100%

71

From the table above, 46.2% of the respondents agree that the

system of budgeting provide a formal budgeting process where

as 33.3% of the response disagree on the formal process of

budgeting in the organization.


WHETHER THE BUDGET IS A PERFORMANCE EVALUATOR

IN YOUR COMPANY

The respondents were asked to state whether the budge is a

performance evaluator.

TABLE 4.1.5

Company’s

respondents


agree

Strongly

disagree

total

Accounts

dept.

11 5 4 1 21

Personnel

dept.

7 5 2 2 16

72

Production

dept.

9 6 1 1 17

Total 27 16 7 4 54

% Response 50% 29.6% 12.9% 7.4% 100%

In table 4.1.5, 50% of the respondents agree that the budget is

a performance evaluator in the company. Then 29.6% strongly

disagree that budget is a performance evaluation in the

company. 12.9% disagreed and 7.4% strongly disagree that

the budget is a performance evaluator in the company.


How does your company respond to deviation?

The respondents were required to state how the company

responds to deviation.

73

TABLE 4.1.6

Company’s

respondents


agree

Strongly

disagree

total

Accounts

dept.

10 5 4 2 21

Personnel

dept.

12 3 3 2 16

Production

dept.

9 4 2 3 17

Total 31 12 4 7 54

% Response 51.9% 33.3% 12.9 7.4 100%


WHAT DOES THE SURVIVAL OF YOUR COMPANY DEPEND ON.

74

Respondents were asked to indicate what the survival of the

company depend on.

TABLE 4.1.9

Company’s

respondents


agree

Strongly

disagree

total

Accounts

dept.

11 5 4 1 21

Personnel

dept.

7 5 2 2 16

Production

dept.

9 6 1 1 17

Total 27 16 7 4 54

% Response 50% 29.6% 12.9% 7.4% 100%

From the table above 46.2% of the respondent asserted that

the company has budgetary planning and control 33.3% said

the company has strong internal control, 12.9% at the

respondent said

75

the company has weak budgetary planning and control and

7.4% said the company has week internal control.


WHETHER THE BUDGET IS A TOOL FOR MEASURING

EFFICIENCY IN THE COMPANY.

Respondents were required to state whether budget is a

necessary tool for measuring efficiency in the organization.

Department Agree Disagree Strongly

agree

Strongly

disagree

Total

Accounts

dept.

7 11 3 0 21

Personnel

dept.

6 6 4 0 16

Production

dept.

12 1 0 4 17

Total 25 18 7 4 54

% Response 46.2% 33.3% 12.9% 7.4% 100%

76

The table above indicates that 46.2% the respondents

answered in the affirmative, 33.3% of the respondents

disagree, 12.9% strongly agree and 7.4% strongly disagree.


WHETHER THE BUDGET IS RELEVANT TO MANAGEMENT

IN DECISION MAKING.

TABLE 1.4.8


agree

Strongly

disagree

Total

Accounts

dept.

7 5 1 3 21

Personnel

dept.

12 6 - 2 16

Production

dept.

10 3 2 3 17

Total 29 14 3 8 54

% Response 53.7% 25.9% 5.5% 14.8% 100%

77

The respondents were required to state whether budgeting is

relevant to management decision making from the table above,

from the table above.

From the table above, 53.7% of the responded asserted that

budgetary planning and control is relevant to management in

decision making, 25.9% disagreed, 5.5% of the respondents

were indifferent and 14.8% were also in the affirmative.

HYPOTHESIS 1

Ho: Budgeting is not a tool for measuring efficiency and

performance in manufacturing company.

Hi: Budgeting is a tool for measuring efficiency and

performance in manufacturing company.

In testing this hypothesis, questions 8, 14, 15, 16 and 17 are

relevant but we shall focus on “16” only.

78

IS THE BUDGET A TOOL FOR MEASURING EFFICIENCY IN

YOUR COMPANY

CONTINGENCY TABLE


agree

Strongly

disagree

Total

Accounts

dept.

7(9.7) 11(7) 3(2.7) 0(1.5) 21

Personnel

dept.

6(7.4) 6(5.3) 4(2.0) 0(1.2) 16

Production

dept.

12(7.8) 1(5.6) 0(2.2) 4(1.3) 17

Total 25 18 7 4 54

% Response 46.2% 33.3% 12.9% 7.4% 100%

R1C1 = R1 X C1

R1C1 = 21 X 25 = 9.7

54

79

R1C2 = 21 X 18 = 7

54

R1C3 = 21 X 7 = 2.7

54

R1C4 = 21 X 4 = 1.5

54

R2C1 = 16 X 25 = 7.4

54

R2C2 = 16 X 18 = 5.3

54

R2C3 = 16 X 7 = 2.0

54

R2C4 = 16 X 4 = 1.2

54

R3C1 = 17 X 25 = 7.8

54

R3C2 = 17 X 18 = 5.6

54

80

R3C3 = 17 X 7 = 2.2

54

R3C4 = 21 X 25 = 1.3

54

Degree of freedom (df) = (R-1) x (C-1)

Where R = 3, C = 4

df = (3-1) (4-1)

= 2 x 3 =6

df = 6

If 0.05 level of significance at 6 degree of freedom, the critical

value of X2 otherwise called chi-square tabulated (X2 tab) is

given as 12.592.

X2 = 12.592 tabulated

X2 calculated = 20.95

This is more than the critical value therefore the null

hypothesis is rejected and the alternative hypothesis which

states that budgeting is a tool for measuring efficiently is

accepted.

81

CALCULATED CHI-SQUARE TABLE

Cell location Fo Fe (fo-fe) (fo-fe)2 (fo-fe)2

Fe

R1C1 7 9.7 -2.7 7.29 0.7

R1C2 11 7 4 16 2.2

R1C3 3 2.7 0.3 0.09 0.03

R1C4 0 1.2 -1.2 1.44 1.2

R2C1 6 7.4 -1.4 1.96 0.26

R2C2 6 5.3 0.7 0.49 0.09

R2C3 4 2.0 2 4 2

R2C4 0 1.2 -1.2 1.44 1.2

R3C1 12 7.8 4.2 17.64 1.47

R3C2 1 5.6 -4.6 21.16 3.7

R3C3 0 2.2 -2.2 4.84 2.2

R3C4 4 1.3 2.7 7.29 5.6

Total 54 20.95

X2 = 12.592 tabulated

X2 calculated = 20.95

82

DECISION

This is more than the critical value therefore the null

hypothesis is rejected and the alternative hypothesis which

states that budgeting is a tool measuring efficiently is

accepted.

HYPOTHESIS II

Ho: That successful business organization does not make use

of formal budget as management tool.

Hi: That successful business organization make use of

formal budget as management tool.

In testing this hypothesis, question 6, 7 12, and 15 are

relevant but we shall concentrate only on 7.

WHETHER THE SYSTEM OF BUDGETING PROVIDE A

FORMAL BUDGET

CONTINGENCY TABLE

83


agree

Strongly

disagree

Total

Accounts 8(9.7) 8(7) 4(2.7) 1(1.5) 21

Personnel 4(7.4) 9(5.3) 3(2.0) 0(1.18) 16

Production 13(7.8) 1(5.6) 0(2.2) 3(1.2) 17

Total 25 18 7 4 54

% Response 46.2% 33.3% 12.9% 7.4% 100%

Fe = R1 X C1

R1C1 = 21 X 18 = 9.7

54

R1C2 = 21 X 18 = 7

54

R1C3 = 21 X 7 = 2.7

54

84

R1C4 = 21 X 4 = 1.5

54

R2C1 = 16 X 25 = 7.4

54

R2C2 = 16 X 18 = 5.3

54

R2C3 = 16 X 7 = 2.0

54

R2C4 = 16 X 4 = 1.18

54

R3C1 = 17 X 25 = 7.8

54

R3C2 = 17 X 18 = 5.6

54

R3C3 = 17 X 7 = 2.2

54

R3C4 = 17 X 4 = 1.3

54

85


Where R = 3, C = 4

df = (3-1) (4-1)

= 2 x 3 =6


value of X2 otherwise called chi-square.

CALCULATED CHI-SQUARE TABLE


Fe

R1C1 8 9.7 -1.7 2.89 0.2

R1C2 8 7 1 1 0.1

R1C3 4 2.7 1.3 1.69 0.6

R1C4 1 1.5 -0.5 0.25 1.5

R2C1 4 7.4 -3.4 11.56 1.5

R2C2 9 5.3 3.7 13.69 2.5

R2C3 3 2.0 1 1 0.5

R2C4 0 1.18 01.18 1.39 1.1

R3C1 13 7.8 5.2 27.04 3.4

R3C2 1 5.6 -4.6 21.16 3.7

86

R3C3 0 2.2 -2.2 4.84 2.2

R3C4 3 1.2 1.8 3.24 2.7

Total 54 18.6

The calculated value is greater than the tabulated value.

Tabulated value = 18.6

Critical value = 12.592

DECISION

Therefore, the null hypothesis is rejected and the alternative

hypothesis which says that successful business organization

make use of formal budget is accepted.

HYPOTHESIS III

Ho: Effective budgetary to planning and control is not

relevant for the survival of manufacturing companies.

87

Hi: Effective budgetary to planning and control is relevant for

the survival of manufacturing companies.

In testing this hypothesis, question 13, 18, 14, 16, 18 and 19

are relevant but we would concentrate on 19 only.

WHAT THE SURVIVAL OF YOUR COMPANY DEPENDS ON

CONTINGENCY TABLE


agree

Strongly

disagree

Total

Accounts 8(9.7) 7(7) 6(2.7) 0(1.5) 21

Personnel 5(7.4) 10(5.3) 1(2.0) 0(1.18) 16

Production 12(7.8) 1(5.6) 0(2.2) 4(1.2) 17

Total 25 18 7 4 54

% Response 46.2% 33.3% 12.9% 7.4% 100%

Fe = R1 X C1

fe

88

R1C1 = 21 X 18 = 9.7

54

R1C2 = 21 X 18 = 7

54

R1C3 = 21 X 7 = 2.7

54

R1C4 = 21 X 4 = 1.5

54

R2C1 = 16 X 25 = 7.4

54

R2C2 = 16 X 18 = 5.3

54

R2C3 = 16 X 7 = 2.0

54

R2C4 = 16 X 4 = 1.18

54

R3C1 = 17 X 25 = 7.8

54

R3C2 = 17 X 18 = 5.6

54

89

R3C3 = 17 X 7 = 2.2

54

R3C4 = 17 X 4 = 1.3

54


Where R = 3, C = 4

df = (3-1) (4-1)

= 2 x 3 =6


value of X2

CALCULATED CHI-SQUARE


Fe

R1C1 8 9.7 -1.7 2.89 0.29

R1C2 7 7 0 0 0

R1C3 6 2.7 3.3 10.89 4.0

R1C4 0 1.5 -1.5 2.25 1.5

R2C1 5 7.4 -2.4 5.76 0.77

90

R2C2 10 5.3 4.7 22.09 4.1

R2C3 1 2.0 -1 1 0.5

R2C4 0 1.18 -1.1 1.21 1.0

R3C1 12 7.8 4.2 17.64 2.26

R3C2 1 5.6 -4.6 21.16 3.7

R3C3 0 2.2 -2.2 4.84 2.2

R3C4 4 1.2 2.8 7.84 6.5

Total 54 26.82

Calculated value = 26.82

Critical value = 12.592

DECISION

Therefore, the null hypothesis is rejected and the alternative

hypothesis which says that effect budgetary planning and

control is relevant for the survival of manufacturing companies

is accepted.

91

CHAPTER FIVE

SUMMERY OF FINDING, RECOMMENDATIONS AND

CONCLUSION

5.0 INTRODUCTION

This chapter attempts to summarise the findings in the

research work and draw conclusion there from. Attempt has

also been made to highlighted a set ot recommendation. The

recommendation shall be useful for business organizations,

investors, sole proprietors and government who may be

interested in the research topic,

5.1 SUMMARY OF FINDINGS

The discussion of the research findings are based on

responses obtained from the administered questionnaire,

personal interviews, observation and the statistical test

applied to. data collected.

An analysis of the response to the questionnaire

administered as well as the chi-square test indicate that

virtually all corporate

92

organization appreciate the role of budgeting as an effective

tool for planning and control in business organization.

Also, the chi-square test reveals that budgeting is a tool

for measuring efficiency and performance in a manufacturing

firm. Personal interview from some staff of Nigerian J3ottling

Company reveals that it is the basis (or attaining company

goat performance is compared against standard,

Similarly, from the response to the questionnaire

administered, all corporate organizations make use of formal

budgets. This budget usually forms the basis for all the

operation, a activities of the organization. The response also

indicated that eyen small scale business that have no formal

budget also make. use of informal budget.

This is in consonance with the views of Gordon (2005)

who asserted that budgeting is the basis for monitoring the

progress of organization as a whole, as well as its component

parts towards the achievement of organizational objectives,

93

All the same, the discussion had with the staff of

Nigerian Bottling Company point to the fact that the operation

of the budget do not function properly all the time. They

pointed out that sometime, there are serious deviations from

the budget by top management. And also, lower level staff are

not comfortable with the budgeting system.

5.2 RECOMMENDATIONS

It has been observed that effective budgeting system is

basically required for the success and survival of any business

organization in the current competitive market, The

recommendations are as follows:

1. Top management should expose a]1 4epartmental heads

to the budgeting process. This will enable them to

understand the importance of adhering to budget and

administration of cost. Budget education should be

conducted yearly by the financial controller or an

independent accountancy firm.

94

2. The organization should find and make use of ore accurate

basis of variance analysis and adopt flexible budgeting

system to make room for adjustment of the budget where

necessary.

3. Strict adherence to budgetary provision should be practised

by top management to ensure effectiveness,

4. Regular and periodic review of the budget should be

introduced in the organization.

5. The budget performance reporting system should also

enhance the achievement of the primary objective of the

company.

5.3 CONCLUSION

Every business organizations, both manufacturing firm and

non-manufacturing firm, either small scale or large scale

business is usually established for the purpose of achieving

specific objectives.

From the discussion of the findings of the research work,

one may comfortably conclude that budgeting is an effective

tool for

95

planning and control in a manufacturing organization.

Budgetary system sets out objectives and strategies for the

attainment of such objectives, while budgetary control ensures

a strict adherence to the budgetary provision and cost control.

It is also pertinent to point put that budgetary planning

and control enhances efficiency in a organization, hut it is not

also error proof, therefore, budget implementation should be

done with caution.

96

BIBLIOGRAPHY

Vincent Onodugo, et al, (2010): Social Science Research,

Principles, Methods ad Application Uwani, El Demark Publisher.

Adeniyi A. Adeniji (2001): An insight into Management

Accounting, Lagos, Value Analysis Consult.

S.N. Konjo (2009): Decision Accounting for man agers, Enugi, De-Adroit Innovation. . 2

Kayode 0. Fasua (2010): Manual on Pulic Sector

Accounting, Jos Laringraphics Press.

Lucey T. (1996): Management Accounting; London, Adine House Publication,

Oshisami K. (1992): Government Accounting and Financial

Control, Ibadon spectrum book Ltd, . . Horngren, Charles T. (1987): Accounting for Managerii

Control. . . . . ... .

Obi, O.J. (2000): “Management Account” Onitsha, Adson Educational Publisher,

Pandy I.M. (1979): Financial Management, New Delhi,

Vikas Publishing House PVT Ltd.

Morse, Wayne J. and Roth, Harold (1986): Cost Accounting Processing, Evaluating, and using Cost, data, Califoma,

Addison Wesley Publishing Company. . . .

Hongren, Charles (1977): Cost Accounting; London, Prentice Hall. . “„ .

97

Onya A.C. (1998) Business Finance in Nigeria Enugu, Hugotez Publication.

ICAN (1996): Distant Learning Pack: Management

Accounting, Lagos Nigeria-Accountancy Training and Publication Ltd.

Ibotoye, Simeon 0. (1985): The Hand book of budgetary

control Berfordashire Graham Burn Publishing Ltd.

Scott, Waler (1980): Business Budgeting and Budgetary Control the Law Book Company of Australia PTY Ltd.

MCAL Pine, I.S. (1981): The Basic arts of Budgeting;

London, Business Books Ltd.

Ona, J.0. (1981): Management Practice in developing communities; London Cassel Ltd.

Drucker, Peter p. (1974): New Templates for today‟s

organizations, Harvard Business Review,

Osisioma B.C. (1984): Traditional Control System an

Accounting Emphasis.

Lucey T. (1989): Costing, DP Publications.

CIMA (1991): Management Accounting; Official Terminology.

Horugren C.T. (1977): Cost Accpntng; A managerial

Emphasis, Prentice HalL

Glosh B.C. (1980): Fixed Costa in Break-even Analysis Management Accounting.

Kaplan, R.S. and Alkinson A. (1989): Advanced Management

Accounting, Prentice Hall.

98

Lec T.A. (1986): Income and Value Measurement, Van Nostrand Reinhold (UK).

Johnson G. and Scholes K. (1993): Exploring Corporate

Strategy, Prentice Hall.

Scapens R.W. (1991): Management Accounting a review of recent Developments, Macmillan.

Anao A.O. (1978) Budgeting Theory and Concepts;

Calabar Englewood publication P. 136.

Anyigho C.I. (1999) Cost and Management Ac. Enugu, Hugoteze Publications 200-202

Akin D.A. (1990) Budgeting at the Local Level, Nigeria:

University Press p.42 & 56

Anyafor A.M.O. (1996) Nigeria Public Accounting and Budgeting Enugu: Gopro Foundation Press p.39

Akachukwu C. 0 (2002) Statistical Analysis for Business, Enugu: Valson (WA) Ltd p.387

Business Times, September 1,3-19 2004

Bashorum F. 0. (2002) Budgeting and Budgetary Control

in Nigeria Enugu: Obic Publishers p. 132-135.

Chukwu U. C. (2002) Accounting and Finance Terminologies Onitsha: Bills Prints and Publishers p. 195.

Cushing B.E. (1970) Public Expenditures. and Pollcy and

Analysis Chicago: Markham Publishers p.81.

99

School of Postgraduate Studies

Faculty of Business Administration

Department of Accountancy

(MBA Programme)

University of Nigeria, Enugu

Campus.

30th August, 2012.

Dear Respondent,

QUESTIONNAIRE

The questions below are designed for the staff of the three selected departments to assist

the researcher carry out an effective research work on “Budgeting as tool for Planning

and Control in a Manufacturing Firm” (A Case Study of Nigerian Bottling Company Plc,

Enugu). All information obtained will be treated with utmost confidentiality and for

academic purpose only.

Your co-operation is highly appreciated.

Thanks.

Oporiopo Michael God knows

Researcher

100

QUESTIONNAIRE

SECTION A

Please tick ( ) at the appropriate box

Name: Dr./Mr./Mrs.iMiss.

1. Sex

(a) male [1 (b) Female [1

2. Age (a) 18-25 [ 1(b) 26-30 [ ](e) 30 and above [ ]

3. Level of education

(a) WASC [1(b) OND/HND [1(0) 13.Sc and above [1

4. Cadre

(a) Junior cadre [ ](b) intermediate cadre [ ](c) senior cadre [ )

5. Working experience

(a) 5-10 yrs [ 1(b) 11-15 ys [](c) 16-2Oyrs [1(d) 2-Syrs [1

6. Do you have a system of budgeting in your organization?

(a) Agree [j (b) disagree [ J (c) indifferent [1(d) stong1y agree [ ]

7. Does the system of budgeting provide a formal budget?

(a) Agree [ 1(b) disagree [ ](c) strongly agree [ (d) strongly

disagree [ ]

8. Is the responsibility of every individual defined (a)Yes[ (b)No[

101

9. Do you have budget committee in your company? (a) Agree [

] (b) disagree [1(c) Indifferent [ ]

10. Is the annual budget always acceptable to all levels of

staff?

(a) To management only [ J (b) Middle level managers [ 1(c)

operational levels only [ ] (d) All levels of staff [ j

11. What type of budgeting is being operated in your

company?

(a) Fixed budget [1(b) Production budget [ 1(c) Flexible budget [

] (d) Functional budget [ ]

12. Is the budget always considered before any expenses is

incurred?

(a) Agree [ ] (b) Disagree [ 1(c) strongly agree [ 1(d) strongly

disagree [ I

13. Does your company adhere strictly to the budget

provision?

(a) Agree [ I (b) Disagree [ ] (c) indifferent [ ]

14. Is the budget a performance evaluator? And why?

(a) Agree [ J (b) Disagree [ ](c) strongly agrec [ ] (d) strongly

disagree

102

15. How does your company respond to deviation,

(a) Corrected promptly [ ] (b) Corrected after budget

implementation [ 1(b) Indifferent [ ]

16. Is the budget a tool for measuring efficiency jn your

company?

(a) Agree [ ] (b) Disagree [ ] (c) strongly agree [ ] (d) strongly

disagree

17. Does your company has provision for adjustment of the

budget?

(a) Agree [ j (b) Disagree [ 1(c) Indifferent [ I (d) Non of the

above

18. Is the budget relevant to management in decision making?

(a) Agree [ 1(b) Disagree [ ] (c) Indifferent [ ] (d) strongly

disagree { ]

19. The survival of your company depends on what?

(a) Budgetary planning and control [ ]

(b) Weak budgetary planning and control [1

(c) Without budgetary planning and control t: ]

(d) very strong budgetary planning and control [ 1

103

20 Are all the planned activities in your comp4ny articulate4

into the

budget?

(a) Agree [ )(b) Disagree [](c) Strongly agree [ ](d) Indifferent [

]

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