y

r
a
t
e
g
d
Bu

l
o
r
t
n
Co

MEANING

Budgetary control is the process of determining various budgeted

figures for the enterprises for the future period and then comparing
budgeted figures with the actual performance for calculating
variances.
DEFINATION
Budgetary control is a system of controlling costs which includes
the preparation of budgets ,co-ordinating the department &
establishing responsibilities comparing actual performance with the
budgeted & acting upon results to achieve maximum profitability.
-BROWN AND HOWARD
A system which uses budgets as a means of planning & controlling
all aspects of producing & selling commodities & services.
-J.BATTY

OBJECTIVES OF BUDGETARY CONTROL

To ensure planning for future by setting up various
budgets.
To coordinate the activities of different departments.
To operate various costs centres & departments with
efficiency and economy.
Elimination of wastes & increases in profitability.
To anticipate capital expenditures for future.
To centralise control systems.
Corrections of deviations from the established
standards.
Fixation of responsibility of various individuals in
the organisation.

Characteristics/Features of Budgetary Control:

(a) Planning
(b) Communicating
(c) Coordination
(d) Control and performance evaluation.

CONCEPT OF BUDGETARY CONTROL

NEED FOR SUCCESSFUL BUDGETARY

CONTROL
1)
2)
3)
4)
5)
6)
7)

Clarifying Objectives
Proper Delegation of Authority & Responsibility
Proper Communication System
Budget Education
Participation of all Employees
Flexibility
Motivation

ESSENTIALS OF BUDGETARY
CONTROL
77

ORGANISATION FOR BUDGETARY CONTRO

 BUDGET CENTRES is that part of the organisation for

which the budget I prepared . It also necessary for cost
control purposes.
BUDGET MANUAL is a document which spells out the
duties and responsibilities of the various executives
concerned with the budgets.. It helps in knowing in writing
role of every employee, his duties ,responsibilities.
BUDGET OFFICER is empowered to scrutinise the budgets
prepared by different functional heads to make changes in
them. The actual performance of different departments is
communicated to budget officer.
BUDGET COMMITTIEE is formed at large scale. These are
responsible for preparation & execution of budgets. Acts as a
coordinator.

 BUDGET PERIOD is the length of time for which a budget

is prepared. It depends on different factors i.e. Nature of
demand ,economic situation , length of trade cycle.
DETERMINATION OF KEY FACTOR- A factor which
influences all other budgets is known as key factor. There
may be a limitation on the quantity of goods a concern may
sell. Then, sales will be the key factor and all other budgets
will be prepared by keeping in view the amount of goods the
concern will able to sell.

TYPES OF BUDGETS
CLASSIFATION ACCORDING TO TIME

A. CLASSIFICATION ACCORDING TO TIME

LONG TERM BUDGETS

The budgets are prepared to depict long term planning of the
business . The period of long term budgets varies b/w 5-10
years. It is done by the top level management. These are
prepared for some sectors of the concern such as capital
expenditure, research& development, long term finances etc.
These are useful for those industries where gestation period
is long i.e. machinery, electricity, etc.

SHORT TERM BUDGETS

Generally for two years. Industries like sugar, cotton, textile etc .

CURRENT BUDGETS
Generally for weeks or months. Relate to current activities of
business.

CLASSIFICATION ON THE BASIS OF

FUNCTION
OPERATION BUDGETS

OPERATION BUDGETS
These budgets relate to the different activities or operating a
firm. Commonly used operating budgets are:
Sales budget / production budget/ purchase budget/ labour
budget
These can be classified in two budgets:
1. Programme budget
2. Responsibility budget
FINANCIAL BUDGETS
These are concerned with cash receipts and disbursements,
working capital, capital expenditure, financial position and
results of business operations.
MASTER BUDGETS
It is the summary budget incorporating its financial budgets. It
is prepared by budget officer. It is used to coordinate the
activities of various financial departments to control device

CLASSIFICATION ON THE BASIS OF

FLEXIBILITY
FIXED BUGDET

FIXED BUDGET
The fixed budget are prepared for a given level of activity the
budget is prepared before the beginning of the financial year.
Fixed budget is a budget which is designed to remain
unchanged irrespective of the level of the activity attained.
These are suitable under static conditions.

FLEXIBLE BUDGETS
It consists of a series of budgets for different level of activity.
It is prepared after taking into considerations unforeseen
changes in the condition of the business. It is defined as a
budget which by recognising the different b/w fixed, semifixed and variable cost is designed to change in relation to
level of activity.

Budgetary control techniques

Budgetary control techniques

1. . Variance Analysis -First of all, budgets of different
departments are made with estimated figures. After this, it is
compared with actual accounting figures. In this technique,
we find variances. These variances may be favourable and
unfavourable. For example, we have recorded actual
quantity and cost of our raw material, after this, it is
compared with budgeted value of raw material quantity and
cost. Result of this will be material cost variance. Like this,
we will find the variance of labour cost and overhead cost.
This technique of budgetary control is helpful for reducing
the cost of business.

ZERO BASED BUGEDTING

Zero based bugedting is the latest technique and it has been
increased use as a managerial tool. This technique was first
used in AMERICA 1962. The former President of AMERICA
Jimmy Carter used this technique when he was the Governor
of GORGIA for controlling state expenditure.
This method carries previous years inefficiencies to the
present year because we take last year as a guide and decide
what is to be done this year when this much was the
performance of the last year. In ZERO BASED
BUDGETING every year is taken as a new year and previous
year is not taken as a base. The budget for this year will have
to be justified according to present situation. Zero is taken as
a base and likely future activities are decided according to
present situations.

 2. Responsibility Accounting
Responsibility accounting is also a good budgetary control
technique. In this technique, we create cost centre, profit
centre and investment centre. All these centres are just like
department of any organisation. Now, we classify our all
employees work on the basis of their centres. Every
employees responsibility is fixed on the basis of his target or
performance. After this, we record their performance
manually. Then, we fix their accountability. For example, we
have fixed the target of sales department is of Rs. 5 Lakh per
month. For this, we have appointed expert salesman. But
sales departments total per month sales is Rs. 3 Lakh which
is Rs. 2 Lakh less than our sales department target. Through
this budgetary control, we can take the decision of promotion
and demotion of our employees or find other reasons if we
do not obtain our targets.

 . Adjustment of Funds
In this technique of budgetary control, top
management take the decision to adjust fund from
one project to other project. For example, when
Govt. of India makes budget for allocation of its
total fund in different projects, at that time, it has to
take decision for adjustment of funds. For example,
railway department needs money for specific new
project. If Govt. of India sees that project of IT has
excess money, then it can be utilized for railway
budget. In adjustment of funds, we also use fund
flow analysis. We can also decrease misuse of funds
by forecasting proper amount

ADVANTAGES OF BUDGETARY CONTROL

1) MAXIMISATION OF PROFIT
2) CO-ORDINATION
3) SPECIFIC AIMS
4) TOOL FOR MEASURING PERFORMANCE
5) ECONOMY
6) DETERMINING WEAKNESS
7) COORECTIVE ACTION
8) CONSCIOUSNESS
9) REDUCE COSTS
10) INTRODUCTION OF INCENTIVE SCHEMES

LIMITATIONS OF BUDGETARY CONTROL

1)
2)
3)
4)
5)
6)

UNCERTAIN FUTURE
REVISION REQUIRED
DISCURAGES EFFICIENT PERSONS
PROBLEM OF CO-ORDINATION
CONFLICT AMONG DIFFERENT DEPARTMENTS
DEPENDS UPON SUPPORT OF TOP MANAGEMENT

CONCLUSION ON BUDGETARY CONTROL

A Budget can be extremely important and effective tool for
management in piolating the affairs of the organisation.
However to prepare a meaningful budget the organisation must
know where it is heading and its goals and objectives.
Priorities changes and this means that many people should
involved in the budget prepration and approval process to
ensure that resulting budget is fully supported . Once
prepare the budget must be compared to actual result on a
timely basis throughout the year to ensure that management
knows where deviation are accuring for corrective actions to
be takes as necessary.
The budget is a tool of management not substitute for
management .