BUDGETING

AFTERSCHO☻OL
– DEVELOPING CHANGE MAKERS
CENTRE FOR SOCIAL ENTREPRENEURSHIP
PGPSE PROGRAMME –
World’ Most Comprehensive programme in social
entrepreneurship & spiritual entrepreneurship
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www.afterschoool.tk AFTERSCHO☺OL's
AFTERSCHO☺OL's MATERIAL
MATERIAL 1
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 BUDGETING

Dr. T.K. Jain.

AFTERSCHO☺OL
Centre for social entrepreneurship
Bikaner M: 9414430763
tkjainbkn@yahoo.co.in
www.afterschool.tk, www.afterschoool.tk

www.afterschoool.tk AFTERSCHO☺OL's
AFTERSCHO☺OL's MATERIAL
MATERIAL 2
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 WHAT IS BUDGETING ?

• IT IS A DETAILED PLAN OF
OPERATIONS PREPARED IN
ADVANCE. IT GIVES DETAILED
FINANCIAL PROJECTIONS. IT HELPS
US IN IDENTIFYING THE MONETARY
AND PHYSICAL UNITS OF
OPERATIONS REGARDING THE
PROJECTED FUTURE.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 3

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 What is control?

• When we compare actual performance to the

planned performance and evaluation the
deviations (if any) and take corrective action, this
entire process is called control. Control is just to
ensure that we are on the right track and doing
the right things as planned. Control is a means
of comparing actual performance to the standard
performance. Controls are standards, which
have been carefully set, well in advance.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 4

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 What is budgetary control?

• When budgeting is used as a means of

control, we called it budgetary control.
Here we establish budgets and fix
responsibilities of executives in terms of
targets, working, objectives, results etc. it
helps us in comparison of actual
performance with the planned
performance. Budgets may be revised as
per changed circumstances.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 5
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 How is budgetary control established?

• Determine the objectives

• Prepare action plan for the objectives
• Prepare detailed budget and discuss it with all
key executives and finalise it.
• Define the constraints, assumptions, and
precautions in advance.
• Prepare budget manual and circulate it to all
concerned
• Review the performance periodically and modify
the budget if required.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 6
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 What are the key issues in budgeting?

• Fix budget period

• Prepare an estimate of planned activities (a
forecast is just an enstimate, but budget is more
than an estimate, it is a plan document and
specifies how we will achieve what we wish to
achieve).
• Fix responsibilities for budget implementation
• Determine key factor
• Appoint budget committee and budget controller

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 7

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 Types of budgets :

• As per time: (long term, short term, medium

term, very short period / current period)
• As per function: (marketing, finance, HR, sales,
production, operations, research, cash,
personnel, master, & capital expenditure
budget).
• As per flexibility : (fixed budget v/s flexible
budget).
• Others : zero base budget, performance
budgeting etc.

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 Operating budgets…

1. Programme budget: this budget is

prepared around a product / project. It
identifies revenues and expenditure to be
undertaken. It is complete budget relating
to a project / product. There are various
persons involved in this budget = therefore
it is not a very good control device for
individual performance. It is a good tool for
organisational performance assessment.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 9
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 2. Responsibility budgeting…

• Here we fix individual responsibilities relating to

the work to be accompalished. It is a very good
tool for individual performance assessment and
evaluation. It is used along with other tools of
management like Balanced Scorecard, in order
to assess the performance of the employee.
• It can be used along with the tools like
responsibility centre, cost centre, revenue
centre, profit centre, expense centre etc. here
we are fixing the budgets relating to revenues
and costs along with individuals responsible for
achieving it.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 10
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 Zero base budgeting…

• Peter A Pyhrr used it for the first time in

1970 in its present form, although it was
used by US dept. of Agriculture in 1961
and by some other agencies earlier also.
• The basic assumption is that we start a
fresh. Historical elements in budgets are
minimised.

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 Definition… of ZBB

• the manager preparing ZBB reviews each

activity from scratch. Nothing is allowed
just because it was done in the past. Each
activity / work is reviewed from the
beginning. We try to make a budget for
each activity from the beginning.
• Here each activity is critically examined
and reviewed in order to fix responsibilities
and duties.

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 Steps in ZBB?

• Decide about objectives…

• Decide the extent to which ZBB will be
implemented
• Identify decision units
• List down and formulate decision
packages
• Review and rank decision packages
• Prepare the budget
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 Advantages of ZBB

• Identifies wastes, unnecessary activities

etc.
• It is a pre-curser to the BPR exercise
• It links each activity to the organisational
corporate mission, objectives and plans
• It is a systematic way to evaluate the
performance of the organisation on
different dimensions.
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 Limitations of ZBB

• More time, more cost, more resources are

required
• It is difficult to rank different decisional
packages
• Implementation is not always easy

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 15

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 A factory makes two products - A and B. A
takes 10 hours to make and B takes 20 hours
to make. In a month (25 days of 8 hours) 500
units of A and 300 units of B are produced.
Budgeted hours are 8500 per month. 60
workers are working. Compute various ratios.
• Standard hours for actual work:
• Actual production * no. of hours
• A = 500 * 10 = 5000 hours
• B = 300 * 20 = 6000 hours
• Total std. hours = 11000
• Budgeted hours = 8500 hours
• Actual hours = 25*8*60 = 12000
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 Solution…

• Activity ratio : std. hours for actual perofrmance

/ budgeted hours * 100
• = 11000/8500*100 = 129%
• Capacity ratio :
• Actual hours / budgeted hours * 100
• = 12000/85000 * 100 = 141%
• Efficiency ratio :
• Std. hours / actual hours * 100
• 11000/12000 * 100 = 91.6% answer.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 17

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 Z Ltd. had a profit plan approved for selling 5,000
units per month at an average price of Rs. 10 per
unit. The budgeted variable cost of production was
Rs. 4 per unit and the fixed costs were budgeted at
Rs. 20,000, the planned income being Rs. 10,000
per month, Due to shortage of raw materials, only
4,000 units could be produced and the cost of
production increased by 50 paise per unit. The
selling price was raised by Re. 1.00 per unit. In
order to improve the production process, an
expenditure of Rs. 1,000 was incurred for research
and development activities.
You are required to prepare a Performance Budget
and a Summary Report.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 18

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 Solution…

Particulars Original Adjusted Actual

plan plan position
Sales 5000*10 4000*10 4000*11
Variable 5000*4 4000*4 4000*4.5
cost
Contribution 30000 26000 26000
Fixed cost 20000 20000 21000
Profit 10000 6000 5000

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 Performance analysis

• Selling price variance

• (act. Price – std. price) * act. Qty
• =(11-10) * 4000 = 4000
• Variable cost variance =
• (std. – act) * act. Production
• =(4 – 4.5) * 4000 = - 2000
• Fixed cost variance = 20000-21000=-1000
• Profit volume variance =reduction in volume * actual
profit per unit= 1000 *6 = -6000
• Total variance = - 5000
• Actual difference = 5000 – 10000 = -5000 answer.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 20
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 About AFTERSCHO☺OL

• PGPSE - World’s most comprehensive

programme on social entrepreneurship –
after class 12th
• Flexible – fast changing to meet the
requirements
• Admission open throughout the year
• Complete support from beginning to the
end – from idea generation to making the
project viable.
www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 21
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 Branches of AFTERSCHO☺OL

• PGPSE programme is open all over the

world as free online programme.
• Those who complete PSPSE have the
freedom to start branches of
AFTERSCHO☺OL
• A few branches have already started -
one such branch is at KOTA (Rajasthan).

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 22

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 Workshop on social entrepreneurship

• We conduct workshop on social

entrepreneurship – all over India and out
of India also - in school, college, club,
association or any such place - just send
us a call and we will come to conduct the
workshop on social entrepreeurship.
• These workshops are great moments of
learning, sharing, and commitments.

www.afterschoool.tk AFTERSCHO☺OL's MATERIAL 23

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 FREE ONLINE PROGRAMME

• AFTERSCHO☺OL is absolutely free

programme available online – any person can
join it. The programme has four components :
• 1. case studies – writing and analysing – using
latest tools of management
• 2. articles / reports writing & presentation of
them in conferences / seminars
• 3. Study material / books / ebooks / audio / audio
visual material to support the study
• 4. business plan preparation and presentations
of those plans in conferences / seminars

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 100% placement / entrepreneurship

• AFTERSCHO☺OL has the record of

100% placement / entrepreneurship till
date
• Be assured of a bright career – if you join
AFTERSCHO☺OL

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 Pursue professional courses along with
PGPSE

• AFTERSCHO☺OL permits you to pursue

distance education based professional /
vocational courses and gives you support
for that also. Many students are doing CA
/ CS/ ICWA / CMA / FRM / CFP / CFA and
other courses along with PGPSE.
• Come and join AFTERSCHO☺OL

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