Professional Documents
Culture Documents
Set 2 MB0025
1. Budgetary Control is a technique of managerial control
through budgets. Elaborate.
Modern business world is full of competition, uncertainty and exposed to
different types of risks. The complexity of managerial problems has led to
development of various managerial tools, techniques and procedures useful
for the management in managing the business successfully. In this direction,
planning and control plays an important role. Budgeting is the most common
and powerful standard device of palling and control.
Budgetary control is a technique of managerial control through
budgets. A budget is a quantitative expression of plan of action. . It is a
pre-determined detailed plan of action developed as a guide for future
operation. According to Wheldon “Budgetary control is the planning in
advance of the various functions of business so that the business as a whole
can be controlled”. Budgetary controls deals with planning, coordination,
recording appraisal and follow-up of actions.
The procedure for preparing plan in respect of future financial and physical
requirements is generally called “Budgeting”. It is a forward planning
exercise. It involves the preparation in advance of the quantitative as well as
the financial statements to indicate the intention of the management in
respect of the various aspects of the business.
Budgetary control is applied to a system of management accounting
control by which all operations and output are forecasted far ahead as
possible and actual results when known are compared with the budget
estimates.
Budgeting is a forward planning. It basically serves as a tool for
management control. The objectives of budgeting may be taken as:
• To forecast and plan for future to avoid losses and to maximize profits.
• To help the concern in planning the activities both physical and financial.
• To bring about coordination between different functions of the enterprise.
• To control; actual actions by ensuring that actual are in tune with targets
Set 2 MB0025
basically a measurement tool. Yardsticks should be laid down. Standards
must be set up.
Preparation of forecasts:
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estimates. Scientific methods should be adopted for forecasting. Analysis of
various factors based on past, and present, future forecast should be made.
Preparation of budgets:
Forecast combinations:
In the absence of any value, the current liability is always taken as 1 unit
Substituting CA in [1],
Set 2 MB0025
For 2.6 CAR, the current asset is Rs.1,10,000 x 2.6 / 1.6 = Rs.1,78,750
= 96,250
Therefore,
= 1,78,750 – 96250
= Rs. 82,500
= 70000 + 350000-35000
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COGS = 385000 Rs.
= 450000 – 385000
= 500000 – 50000
= 450000 Rs.
= (65000/450000) X 100
= 14.4%
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Debtors
Sundry 9,000 5,000 Stock 9,000 7,000
Creditors
Long-term - 5,000 Machinery 24,000 34,000
Loans
Building 50,000 50,000
Set 2 MB0025
1. FFS is related with accrual basis whereas CFS is on cash basis. For this
the, it is necessary to convert the accrual to cash basis.
2. In FFS, a Schedule of changes in working capital de-linking the current
assets and current liabilities are made. But in CFS, no schedule is
prepared.
3. FFS shows the causes of the changes in net working capital. CFS
shows the causes for the change in cash
4. In FFS, no opening or closing balances are recorded. But in CFS both
are incorporated
5. FFS is not based on the Ledger mode. But CFS is prepared on the
basis of Ledger principles.
6. In FFS, “To” and “By” are indicated. In CFS, these are not indicated.
7. In FFS, net effect of receipts and disbursements are recorded. In CFS
only cash receipts and payments are recorded.
8. FFS is concerned with the total provision of funds. CFS is concerned
with only cash.
9. FFS is flexible but CFS is rigid
10.FFS is more relevant for long range financial strategy. CFS
concentrates on short term aspects mostly affecting the liquidity of the
business.
Income Statement
No. Of computers produced 100
No. Of computers sold 100
Unit selling price per computer 42000
unit variable cost per computer 28000
Sales revenue =No. Of
computers sold X unit selling 4200000
price
Less variable cost (100 X 28000) -2800000
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Less Fixed expenses -1400000
Profit or loss 0
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Cost Variable Analysis:
b) Fixed costs shall remain fixed during the relevant volume range of graph.
c) Variable cost per unit will remain constant during the relevant volume
range of graph
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e) Costs and revenues are influenced only by volume
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