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(a case study of Delatre Bazon Nig. Ltd.) A PROJECT WORK SUBMITTED TO THE SCHOOL OF BUSINESS STUDIES, DEPARTMENT OF BUSINESS ADMINISTRATION. IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE AWARD NATIONAL DIPLOMA IN BUSINESS ADMINISTRATION. NOVEMBER 2009
We certify this work was carried out by …………………………….. in the School of Business Studies, department of Business Administration, Akwa Ibom State Polytechnic as meeting the requirement for the award of ordinary diploma in Business Administration.
________________ Centre Co-ordinator
I dedicate this project to Almighty God for his divine guidance, grace and mercy throughout my academic pursuit. May all Glory, Honour, Majesty and power be ascribed unto His Holy Name in Jesus Name.
I thereby which to Acknowledged the following people that has made my dream and purpose in life to come through. First of all, thanks to Almighty God who gave me power and wisdom, and the grace to be educated and to MR ___________________________________________ and my dear mother Mrs. ___________________________________________ who is an encouragement to my life and my brothers and Sisters ________________ _____________________________________________________________ ______ for their love towards me in prayer, also my supervisor who has been a great help to me. _______________________________________ and my lovely Register of warri center MRS Stella Oyabugbe and my Coodinator of warri Centre Mrs Alex Obinaka for her love towards me and my ______________________________________________________ father whose
Vision for my life was to be great and useful in life and those many love ones too numerous to name. My prayer to God Almighty is that HE should bless you all richly in JESUS NAME.
The researcher viewed a budget as a plan expressed in quantitative, usually monetary term, covering a specific period of time, usually one year. While a budgetary control is a methodical control of an organization's operations through establishment of standards and targets regarding income and expenditure, and a continuous
monitoring and adjustment of performance against them. In this research work, the researcher will be considering …
• An indication and explanation of the importance of budget and
budgetary control in an organisation as a key marketing control technique · An overview of the advantages and disadvantages of budgeting · An introduction to the methods for preparing budgets · An appreciation of the uses of budgets • The role budget and budgetary control in an organization.
This research work is organized in five chapters as follows: • 1. Introduction • 2. Review of Related Literature • 3. Research Methods and Producers • 4. Data presentation and Analysis and • 5. Summary, Findings, Conclusion and Recommendation.
CHAPTER ONE INTRODUCTION
1.0 THE BACKGROUND OF THE STUDY
Of all business activities, budgeting is one of the most important and, therefore, requires detailed attention. The research work focuses on the concept of responsibility centres, and the advantages and disadvantages of budget and budgetary control. It then goes on to deal on the detail of budget construction and the use to which budgets can be put. Like all management tools, the researcher highlights the need for detailed information, if the technique is to be used to its fullest advantage. Budgets can take many forms and serve many functions. Budgets can provide the basis for detailed sales targets, staffing plans, inventory production, cash investment/borrowing, capital expenditures (for plant assets, etc.), and on and on. Budgets provide benchmarks against which to compare actual results and develop corrective measures. Budgets give managers "preapproval" for execution of spending plans. Budgets allow managers to provide forward looking guidance to 7
investors and creditors. Budgets are necessary to convince banks and other lenders to extend credit. Budgetary control is the process of ascertaining several budgeted figures for the future of a business enterprise and then making comparison of these budgeted figures with the actual results for finding out discrepancies, if any. The comparison of budgeted and actual figures will allow the management to take curative actions at a proper time. Budgetary control can be defined as, “A means of achieving the financial control of an entity whereby the actual results for a defined period of time are compared with the budgeted results, any differences (or variances) being noted, and some corrective action taken to bring the actual activities back into line with the budgeted ones if such variances need to be dealt with.”
1.1 STATEMENT OF RESEARCH PROBLEM
In looking at the anatomy of budget and budgetary control in business organization, some of the questions easily come to mind are: 1. Can budgeting brings about efficiency and improvement in the working of the organization. 8
2. Is it a way of communicating the plans to various units of the organization. By establishing the divisional, departmental, sectional budgets, exact responsibilities are assigned. It thus minimizes the possibilities of buck passing if the budget figures are not met. 3. Is it a way of motivating managers to achieve the goals set for the units. 4. Does it serve as a benchmark for controlling on-going operations. 5. Does it help in developing a team spirit where participation in budgeting is encouraged? 6. Can it help in reducing wastage and losses by revealing them in time for corrective action. 7. Can it serve as a basis for evaluating the performance of managers. 8. Can it serve as a means of educating the managers. 9. Can budgetary control enables remedial action to be taken as variances emerge. 10 Can it motivates employees by participating in the setting of budgets. 11. Can it improve the allocation of scarce resources.
1.2 OBJECTIVES OF THE STUDY
The objective of management accounting is to help managers achieve the missions and strategies established for their enterprises. It is a branch of accounting that provides financial and other information to managers. A key role for management accountants is to establish the control systems used to achieve organizational goals and minimize risks. One of the most important of these is budgetary control, a powerful tool that encourages planning, sets milestones, evaluates performance and suggests paths for improvement. Management accountants also develop information systems that communicate strategic and operational priorities to managerial decision makers.
The budgetary control is a continuous process that helps in planning, coordination and controlling of business decisions. A budget is a means and budgetary control is the end-result. The budgetary control system assists an organization in setting up the goals and efforts are made for its achievements. It enables economies in the enterprise. The main objectives of budgetary control are as follows: - It is essential for planning, controlling and also acts as an instrument of coordination. - It coordinates the actions of various departments. - Budgetary control helps in eliminating wastes and raises the profitability position of a business enterprise.
- It makes a prediction about capital expenditure for future. - It helps in amending deviations from the established standards. - It centralizes the control system. - Budgetary control operates various cost centres and departments with efficiency and economy.
- the utility and functioning of a budget control process; - to design of the budgetary control system as a function of the organizational strategy; - to show the use of budgets to manage revenues, costs and profits; - to show the relationship between management control and organizational structure; - the organization of financial information in a comprehensible, flexible, accessible and useful form to empower decision making; - the evaluation of performance for different administrative units within the organizational structure; - the development and use of non financial performance measures.
1.3 SIGNIFICANCE OF THE STUDY
This study is significant because it will produce data on the anatomy of budget and budgetary control that will be useful to:
federal ministry of finance
2. 3. 4. 5. 6. 7.
State ministry of finance national union of local government employees state civil service commission federal civil service commission . managers and top executives in organized private sector students carry a research work in this same issue.
It is a conjectural statement of the relationships between two or more variables. It is testable, tentative problem explanation of the relationship between two or more variables that create a state of affairs or phenomenon.
E,C, Osuola (1986 page 48) said hypothesis should always be in declarative sentence form, and they should relate to them generally or specially variable to variables.
HYPOTHESIS THUS: 1. 2. 3. Explain observed events in a systematic manner Predict the outcome of events and relationships Systematically summarized existing knowledge.
In essence, there exist NULL HYPOTHESIS set up only to nullify the research hypothesis and the ALTERNATIVE HYPOTHESIS for the purpose of the study. For the efficiency of the study, the hypothesis is as follows:
NULL HYPOTHESIS (HO) 1.
Budgetary control do not operate in various cost centres and departments with efficiency and economy.
Budgetary control does not help in eliminating wastes and raises
the profitability position of a business enterprise.
ALTERNATIVE HYPOTHESIS 1. Does
Budgetary control operates in various cost centers and
departments with efficiency and economy?.
Does Budgetary control helps in eliminating wastes and raises the profitability position of a business enterprise?.
1.5 LIMITATIONS OF THE STUDY
A research work of this nature cannot come to an end without limitation. The researcher encountered
numerous problems which affected the smooth running of the work. These problems includes, difficulty in procuring materials for the project, time factor and financial constraints. Material Procurement There was a lot constraints as to getting information and materials for the job. The researcher made series of consultations and visit to most renowned institutions to acquire the needed information. Most materials used were very difficult to come by, as there is no library within the town. Time Constraints Combining academic work with job is no doubt a thought provoking issue, as it has to do with time. Actually, a lot of time was wasted as the researcher visited the organizations and individuals together with
government agencies to obtain valuable information for the project. Financial Constraints The researcher would have obtained more information than what is obtainable here but due to lack of money to visit some of the firms and government agencies located a bit farther from the researcher place of resident.
THE SCOPE OF THE STUDY
This research work describes the controls necessary to ensure that public/private funds are safeguarded, with accountability maintained at all stages. it touches various areas like………. • • • • • • • Personal budget corporate budget government budget budgetary control systems budget holder responsibilities management checks Definition of related terms and so on
In a business organization, a budget represents an estimate of future costs and revenues. Budgets may be divided into two basic classes: Capital Budgets and Operating Budgets. Capital budgets are directed towards proposed expenditures for new projects and often require special financing. The operating budgets are directed towards achieving short-term operational goals of the
organization, for instance, production or profit goals in a business firm. Operating budgets may be sub-divided into various departmental of functional budgets. No system of planning can be successful without having an effective and efficient system of control. Budgeting is closely connected with control. The exercise of control in the organization with the help of budgets is known as budgetary control. The process of budgetary control includes: 16
1. Preparation of various budgets. 2. Continuous comparison of actual performance with budgetary performance. 3. Revision of budgets in the light of changed circumstances. A system of budgetary control should not become rigid. There should be enough scope of flexibility to provide for individual initiative and drive. Budgetary control is an important device for making the organization. More efficient on all fronts. It is an important tool for controlling costs and achieving the overall objectives. 2.1
MASTER BUDGET EXPLAINED
Master budget for a big organization summarizes the goals of all subunits of an organization - either business divisions if the company is organized along divisional lines or managerial functions if the company is organized along functional lines.
statement, balance sheet, and a cash flow statement, along with supporting schedules.
IMPERATIVE FOR BUDGETING
The advocates of budgeting state that the process of preparing budget forces executives to become better managers. Budgeting schedule of a company puts planning where it belongs - in the forefront of every manager's mind. It also forces him to review his performance in the last period and identify good practices that enhanced
performance and issues that contributed negatively to performance. Budgetary control at department level is encouraging department level personnel to plan their operations for the forth coming period. Both outputs and inputs are to be planned. If possible outputs and inputs are converted into revenues and costs. The accounting system of the company will prepare the actual revenues and costs generated at the end of the period as well as during the period. The department managers have to responsibility to carry out the day to day activities to achieve the best possible results with their plan/budget as the guiding document. Budgets can be made flexible so that cost estimates are in relation to the output produced. Variance analysis can be done to pin point the variables that changed during the period and their effect on actual results.
Budgetary control system facilitates participation of department managers as well as senior level managers in explicitly planning for the future. The plan can be optimized with various optimization techniques. These techniques include linear programming (for product mix problems), transportation (for planning transport of finished goods) and assignment (assigning machines for jobs or operators for jobs) and other operations research techniques. A formal budgeting system can question the department managers on whether they have applied the optimization techniques or not and where necessary advise them to use those techniques and provide specialist support in cases where necessary. 2.3 BUSINESS START-UP BUDGET
The process of calculating the costs of starting a small business begins with a list of all necessary purchases including tangible assets (for example, equipment, inventory) and services (for example, remodeling, insurance), working capital, sources and collateral. The budget should contain a narrative explaining how you decided on the amount of this reserve and a description of the expected financial results of business activities. The assets should be valued with each and every cost. 19
CORPORATE BUDGET The budget of a company is often compiled annually, but may not be. A finished budget, usually requiring considerable effort, is a plan for the short-term future, typically one year (see Budget Year). While traditionally the Finance department compiles the company's budget, modern software allows hundreds or even thousands of people in various departments (operations, human resources, IT etc) to list their expected revenues and expenses in the final budget. If the actual figures delivered through the budget period come close to the budget, this suggests that the managers understand their business and have been successfully driving it in the intended direction. On the other hand, if the actuals diverge wildly from the budget, this sends an 'out of control' signal, and the share price could suffer as a result.
EVENT MANAGEMENT BUDGET A budget is a fundamental tool for an event director to predict with reasonable accuracy whether the event will result in a profit, a loss or will break-even. A budget can also be used as a pricing tool.
GOVERNMENT BUDGET The budget of a government is a summary or plan of the intended revenues and expenditures of that government. The United States federal budget is prepared by the Office of Management and Budget, and submitted to Congress for consideration. Invariably, Congress makes many and substantial changes.
PERSONAL OR FAMILY BUDGET In a personal or family budget all sources of income (inflows) are identified and expenses (outflows) are planned with the intent of matching outflows to inflows (making ends meet.) In consumer theory, the equation restricting an individual or household to spend no more than its total resources is often called the budget constraint..
WHY SHOULD WE BUDGET?
Controlling your financial affairs requires a budget. For many people, the word "budget" has a negative connotation. Instead of thinking of a budget as financial handcuffs, think of it as a means to achieve financial success.
Whether you make thousands of naira a year or hundreds of thousands of naira a year, a budget is the first and most important step you can take towards putting your money to work for you instead of being controlled by it and forever falling short of your financial goals.
Budgeting and tracking your expenses gives you a strong sense of where your money goes and can help you reach your financial goals.
Since financial matters are one of the leading causes of marital discord and divorce, getting a handle on your spending, implementing a budget, and saving for the future can also have positive effects on your relationship with your spouse or partner.
BUDGET TYPES 1. Sales budget: The sales budget is an estimate of future sales, often broken down into both units and dollars. It is used to create company sales goals. 2. Production budget: Product oriented companies create a production budget which estimates the number of units that must be manufactured to meet the sales goals. The production budget
also estimates the various costs involved with manufacturing those units, including labor and material. Cash Flow/Cash budget: The cash flow budget is a prediction of future cash receipts and expenditures for a particular time period. It usually covers a period in the short term future. The cash flow budget helps the business determine when income will be sufficient to cover expenses and when the company will need to seek outside financing. 4 Marketing budget: The marketing budget is an estimate of the funds needed for promotion, advertising, and public relations in order to market the product or service. 5 Project budget: The project budget is a prediction of the costs associated with a particular company project. These costs include labor, materials, and other related expenses. The project budget is often broken down into specific tasks, with task budgets assigned to each. 6 Revenue budget: The Revenue Budget consists of revenue receipts of government and the expenditure met from these revenues. Tax revenues are made up of taxes and other duties that the government levies. 7 Expenditure budget: A budget type which include of spending data items. 23
2.10 ADVANTAGES OF BUDGETING AND BUDGETARY CONTROL There are a number of advantages to budgeting and budgetary control: Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organisation purpose and direction. Promotes coordination and communication. Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control. Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.
Enables remedial action to be taken as variances emerge. Motivates employees by participating in the setting of budgets. Improves the allocation of scarce resources. Economises management time by using the management by exception principle. 2.11 PROBLEMS IN BUDGETING Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms. Budgets can be seen as pressure devices imposed by management, thus resulting in: a) bad labour relations b) inaccurate record-keeping. Departmental conflict arises due to: a) disputes over resource allocation b) departments blaming each other if targets are not attained. It is difficult to reconcile personal/individual and corporate goals.
Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department. Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs. Managers may overestimate costs so that they will not be blamed in the future should they overspend. 2.12 CHARACTERISTICS OF A BUDGET A good budget is characterised by the following: Participation: involve as many people as possible in drawing up a budget. Comprehensiveness: embrace the whole organisation. Standards: base it on established standards of performance. Flexibility: allow for changing circumstances. Feedback: constantly monitor performance. Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centres.
2.13 BUDGET ORGANISATION AND ADMINISTRATION: In organising and administering a budget system the following characteristics may apply: a) Budget centres: Units responsible for the preparation of budgets. A budget centre may encompass several cost centres. b) Budget committee: This may consist of senior members of the organisation, e.g. departmental heads and executives (with the managing director as chairman). Every part of the organisation should be represented on the committee, so there should be a representative from sales, production, marketing and so on. Functions of the budget committee include: Coordination of the preparation of budgets, including the issue of a manual Issuing of timetables for preparation of budgets Provision of information to assist budget preparations Comparison of actual results with budget and investigation of variances. c) Budget Officer: Controls the budget administration The job involves:
liaising between the budget committee and managers responsible for budget preparation dealing with budgetary control problems ensuring that deadlines are met educating people about budgetary control. d) Budget manual: This document: charts the organisation details the budget procedures contains account codes for items of expenditure and revenue timetables the process clearly defines the responsibility of persons involved in the budgeting system. 2.14 BUDGET PREPARATION Firstly, determine the principal budget factor. This is also known as the key budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output, e.g. sales, material or labour.
a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product and also in sales value. Methods of sales forecasting include: sales force opinions market research statistical methods (correlation analysis and examination of trends) mathematical models. In using these techniques consider: company's pricing policy general economic and political conditions changes in the population competition consumers' income and tastes advertising and other sales promotion techniques after sales service credit terms offered. b) Production budget: expressed in quantitative terms only and is geared to the sales budget. The production manager's duties include: analysis of plant utilisation work-in-progress budgets. 29
If requirements exceed capacity he may: subcontract plan for overtime introduce shift work hire or buy additional machinery The materials purchases budget's both quantitative and financial. c) Raw materials and purchasing budget: The materials usage budget is in quantities. The materials purchases budget is both quantitative and financial. Factors influencing a) and b) include: production requirements planning stock levels storage space trends of material prices. d) Labour budget: is both quantitative and financial. This is influenced by: production requirements man-hours available grades of labour required 30
wage rates (union agreements) the need for incentives. e) Cash budget: a cash plan for a defined period of time. It summarises monthly receipts and payments. Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are: to maintain control over a firm's cash requirements, e.g. stock and debtors to enable a firm to take precautionary measures and arrange in advance for investment and loan facilities whenever cash surpluses or deficits arises to show the feasibility of management's plans in cash terms to illustrate the financial impact of changes in management policy, e.g. change of credit terms offered to customers. Receipts of cash may come from one of the following: cash sales payments by debtors the sale of fixed assets the issue of new shares the receipt of interest and dividends from investments. 31
Payments of cash may be for one or more of the following: purchase of stocks payments of wages or other expenses purchase of capital items payment of interest, dividends or taxation.
Steps in preparing a cash budget i) Step 1: set out a pro forma cash budget month by month. Below is a suggested layout.
Month 1 N Cash receipts Receipts from debtors Sales of capital items Loans received Proceeds from share issues Any other cash receipts Cash payments Payments to creditors Wages and salaries Loan repayments Capital expenditure Taxation Dividends Any other cash expenditure Receipts less payments Opening cash balance b/f Closing cash balance c/f Month 2 N Month 3 N
ii) Step 2: sort out cash receipts from debtors iii) Step 3: other income iv) Step 4: sort out cash payments to suppliers v) Step 5: establish other cash payments in the month Figure 4.1 shows the composition of a master budget analysis. Figure 2.1 Composition of a master budget
OPERATING BUDGET consists of:Budget P/L acc: get: Production budget Materials budget Labour budget Admin. budget Stocks budget
FINANCIAL BUDGET consists of Cash budget Balance sheet Funds statement
f) Other budgets that could be prepared: These include budgets for:
• administration • research and development • selling and distribution expenses • capital expenditures • working capital (debtors and creditors).
An example A sugar cane farm in owned and operated by Delatre Bazon Nig. Ltd. devised an operating budget as follows:
• Cultivation • Irrigation • Field maintenance • Harvesting • Transportation.
With each operation, there will be costs for labour, materials and machinery usage. Therefore, for e.g. harvesting, these may include four resources, namely:
• Labour: -cutting -sundry
• Tractors • Cane trailers • Implements and sundries. Having identified cost centres, the next step will be to make a quantitative calculation of the resources to be used, and to further break this down to shorter periods, say, one month or three months. The length of period chosen is important in that the shorter it is,
the greater the control that can be exercised by the budget but the greater the expense in preparation of the budget and reporting of any variances. The quantitative budget for harvesting may be calculated as shown in figure 2.2. Figure 4.2 Quantitative harvesting budget
Harvesting Labour Cutting Sundry Tractors Cane trailers nil nil nil nil 9,000 tonnes 16,000 tonnes 10,000 tonnes 300 man days 450 man days 450 man days 630 hours 1,100 hours 700 hours 9,000 tonnes 16,000 tonnes 10,000 tonnes 9,000 tonnes 16,000 tonnes 10,000 tonnes 1st quarter 2nd quarter 3rd quarter 4th quarter
Imp, & sundries nil
Each item is measured in different quantitative units - tonnes of cane, man days etc.-and depends on individual judgement of which is the best unit to use. Once the budget in quantitative terms has been prepared, unit costs can then be allocated to the individual items to arrive at a budget for harvesting in financial terms as shown in table 2.2. Charge out costs In table 2.2 tractors have a unit cost of N7.50 per hour - machines like tractors have a whole range of costs like fuel and oil, repairs and maintenance, driver, licence, road tax and insurance and depreciation. Some of the costs are fixed, e.g. depreciation and insurance, whereas some vary directly with use of the tractor, e.g. fuel and oil. Other costs such as repairs are unpredictable and may be very high or low - an estimated figure based on past experience.
Figure 2.3 Harvesting cost budget
Item harvesting Labour Cutting N0.75 per tonne 6,750 12,000 7,500 26,250 Unit cost 1st quarter 2nd quarter 3rd quarter 4th quarter Total
Sundry Tractors Cane Trailers
N2.50 per day N7.50 per hour N0.15 per tonne
750 4,725 1,350 2,250 N15,825
1,125 8,250 2,400 4,000 N27,775
1,125 5,250 1,500 2,500 N17,875
3,000 18,225 5,250 8,750 N61,475
Imp. & sundries N0.25 per tonne
So, overall operating cost of the tractor for the year may be budgeted as shown in figure 2.4. If the tractor is used for more than 1,000 hours then there will be an over-recovery on its operational costs and if used for less than 1,000 hours there will be under-recovery, i.e. in the first instance making an internal 'profit' and in the second a 'loss'. Figure 2.4 Tractor costs
Unit rate (N) Fixed costs Depreciation Driver Repairs Variable costs Fuel and oil Maintenance No. of hours used Cost per hour 2,000.00 100.00 per month 2.00 per hour 2,000.00 200.00 1,200.00 2,000.00 7,500.00 1,000.00 7.50 Licence and insurance 200.00 Cost per annum (1,000 hours) (N)
600.00 per annum 600.00 3.00 per 200 hours 1,500.00
Master budget The master budget for the sugar cane farm may be as shown in figure 2.5. The budget represents an overall objective for the farm for the whole year ahead, expressed in financial terms. Table 2.5 Operating budget for sugar cane farm 19X4
1st quarter 2nd quarter 3rd quarter 4th quarter Total $ Revenue from cane Less: Costs Cultivation Irrigation Field maintenance Harvesting Transportation 37,261 7,278 4,826 48,268 15,297 12,923 15,825 14,100 42,368 18,473 15,991 27,775 24,750 55,416 11,329 7,262 17,875 15,750 183,313 52,377 41,002 61,475 54,600 130,000 250,000 120,000 500,000
49,365 Add: Opening valuation 85,800 135,165 Less: Closing valuation 135,165 Net crop cost Gross surplus Less: Overheads Net profitless) 5,876 (5,876)
106,413 135,165 241,578 112,240 129,338 66,200 7,361 (6,699)
129,357 112,240 241,597 94,260 147,337 102,663 7,486 95,177
107,632 94,260 201,892 90,290 111,602 8,398 5,321 3,077
392,767 85,800 478,567 90,290 388,277 111,723 26,044 85,679
Once the operating budget has been prepared, two further budgets can be done, namely:
i. Balance sheet at the end of the year.
ii. Cash flow budget which shows the amount of cash necessary to support the operating budget. It is of great importance that the business has sufficient funds to support the planned operational budget. Reporting back During the year the management accountant will prepare statements, as quickly as possible after each operating period, in our example, each quarter, setting out the actual operating costs against the budgeted costs. This statement will calculate the difference between the 'budgeted' and the 'actual' cost, which is called the 'variance'. There are many ways in which management accounts can be prepared. To continue with our example of harvesting on the sugar cane farm, management accounts at the end of the third quarter can be presented as shown in figure 2.6. Figure 2.6 Management accounts - actual costs against budget costs Management accounts for sugar cane farm 3rd quarter 20XX
3rd quarter Item Harvesting Labour Year to date
Actual Budget Variance Actual Budget Variance
- Cutting - Sundry Tractors Cane trailers Imp & sundries
12,200 12,000 (200) 742 9,375 1,678 4,270 1,125 8,250 2,400 4,000 383 (1,125) 722 (270)
19,060 18,750 (310) 1,584 2,505 6,513 1,875 3,750 6,250 291 1,245 (263) 13,500 12,975 (525)
28,265 27,775 (490)
43,162 43,600 438
Here, actual harvesting costs for the 3rd quarter are N28,265 against a budget of N27,775 indicating an increase of N490 whilst the cumulative figure for the year to date shows an overall saving of N438. It appears that actual costs are less than budgeted costs, so the harvesting operations are proceeding within the budget set and satisfactory. However, a further look may reveal that this may not be the case. The budget was based on a cane tonnage cut of 16,000 tonnes in the 3rd quarter and a cumulative tonnage of 25,000. If these tonnages have been achieved then the statement will be satisfactory. If the actual production was much higher than budgeted then these costs represent a very considerable saving, even though only a marginal saving is shown by the variance. Similarly, if the actual tonnage was significantly less than budgeted, then what is indicated as a marginal saving in the variance may, in fact, be a considerable overspending. Price and quantity variances Just to state that there is a variance on a particular item of expenditure does not really mean a lot. Most costs are composed of two elements - the quantity used and the price per unit. A variance between the actual cost of an item and its budgeted cost may be due to one or both of these factors. Apparent similarity
between budgeted and actual costs may hide significant compensating variances between price and usage. For example, say it is budgeted to take 300 man days at N3.00 per man day giving a total budgeted cost of N900.00. The actual cost on completion was N875.00, showing a saving of N25.00. Further investigations may reveal that the job took 250 man days at a daily rate of N.50 - a favourable usage variance but a very unfavourable price variance. Management may therefore need to investigate some significant variances revealed by further analysis, which a comparison of the total costs would not have revealed. Price and usage variances for major items of expense are discussed below. Labour The difference between actual labour costs and budgeted or standard labour costs is known as direct wages variance. This variance may arise due to a difference in the amount of labour used or the price per unit of labour, i.e. the wage rate. The direct wages variance can be split into: i) Wage rate variance: the wage rate was higher or lower than budgeted, e.g. using more unskilled labour, or working overtime at a higher rate. ii) Labour efficiency variance: arises when the actual time spent on a particular job is higher or lower than the standard labour hours specified, e.g. breakdown of a machine.
Materials The variance for materials cost could also be split into price and usage elements: i) Material price variance: arises when the actual unit price is greater or lower than budgeted. Could be due to inflation, discounts, alternative suppliers etc. ii) Material quantity variance: arises when the actual amount of material used is greater or lower than the amount specified in the budget, e.g. a budgeted fertiliser at 350 kg per hectare may be increased or decreased when the actual fertiliser is applied, giving rise to a usage variance. Overheads Again, overhead variance can be split into: i) Overhead volume variance: where overheads are taken into the cost centres, a production higher or lower than budgeted will cause an over-or under-absorption of overheads. ii) Overhead expenditure variance: where the actual overhead expenditure is higher or lower than that budgeted for the level of output actually produced.
2.15 ZERO BASE BUDGETING (ZBB) After a budgeting system has been in operation for some time, there is a tendency for next year's budget to be justified by reference to the 39
actual levels being achieved at present. In fact this is part of the financial analysis discussed so far, but the proper analysis process takes into account all the changes which should affect the future activities of the company. Even using such an analytical base, some businesses find that historical comparisons, and particularly the current level of constraints on resources, can inhibit really innovative changes in budgets. This can cause a severe handicap for the business because the budget should be the first year of the long range plan. Thus, if changes are not started in the budget period, it will be difficult for the business to make the progress necessary to achieve longer term objectives. One way of breaking out of this cyclical budgeting problem is to go back to basics and develop the budget from an assumption of no existing resources (that is, a zero base). This means all resources will have to be justified and the chosen way of achieving any specified objectives will have to be compared with the alternatives. For example, in the sales area, the current existing field sales force will be ignored, and the optimum way of achieving the sales objectives in that particular market for the particular goods or services should be developed. This might not include any field sales force, or a differentsized team, and the company then has to plan how to implement this new strategy. 40
The obvious problem of this zero-base budgeting process is the massive amount of managerial time needed to carry out the exercise. Hence, some companies carry out the full process every five years, but in that year the business can almost grind to a halt. Thus, an alternative way is to look in depth at one area of the business each year on a rolling basis, so that each sector does a zero base budget every five years or so. 2.16 BUDGET PROCESSES AND HUMAN BEHAVIOR
BUDGET COMMITTEE: A comprehensive budget usually involves all segments of a business. As a result, representatives from each unit are typically included throughout the process. The process is likely to be spearheaded by a budget committee consisting of senior level personnel. Such individuals bring valuable insights about all aspects of sales, production, and other phases of operations. Not only are these individuals ideally positioned to provide the best possible information relative to their respective units, they also need to be present to effectively advocate for the opportunities and resource needs within their unit. The budget committee's work is not necessarily complete once the budget document is prepared and approved. A remaining responsibility for many committees is to continually monitor progress against the budget, and potentially recommend mid-course corrections. The budget committee's decisions can greatly impact the fate of specific business units, in terms of resources made available as well as setting the benchmarks that will be used to assess 41
performance. As a result, members of the budget committee will generally take their task very seriously. BUDGET CONSTRUCTION: The budget construction process will normally follow the organizational chart. Each component of the entity will be involved in preparing budget information relative to its unit. This information is successively compiled together as it is passed up through the organization until an overall budget plan is achieved. But, beyond the data compilation, there is critical difference in how budgets are actually developed among different organizations. Some entities follow a top-down, or mandated approach. Others utilize a bottomup, or participative philosophy.
Some entities will follow a top-down These budgets will begin with
mandated approach to budgeting.
upper level management establishing parameters under which the budget is to be prepared. These parameters can be general or specific. They can cover sales goals, expenditure levels, guidelines for compensation, and more. Lower-level personnel have very little input in setting the overall goals of the organization. The upper-level executives call the shots, and lower-level units are essentially
reduced to doing the basic budget calculations consistent with directives. Mid-level executives may color the budget process by refining the leadership directives as the budget information is passed down through the organization. One disadvantage of the top-down approach is that lower-level managers may view the budget as a dictatorial standard. Resentment can be fostered in such an environment. Further, such budgets can sometimes provide ethical challenges, as lower-level managers may find themselves put in a position of ever-reaching to attain unrealistic targets for their units. On the positive side, top-down budgets can set a tone for the organization. They signal expected sales and production activity that the organization is supposed to reach. Some of the most efficient and successful organizations have a hallmark strategy of being “lean and mean.” The budget is a most effective communication device in getting employees to hear the message and perform accordingly.
PARTICIPATIVE BUDGETS: The bottom-up participative approach is driven by involving lower-level employees in the budget development process. Top
management may initiate the budget process with general budget guidelines, but it is the lower-level units that drive the development of budgets for their units. These individual budgets are then grouped and regrouped to form a divisional budget with mid-level executives adding their input along the way. Eventually top management and the budget committee will receive the overall plan. As you might suspect, the budget committee must then review the budget components for consistency and coordination. This may require several iterations of passing the budget back down the ladder for revision by lower units. Ultimately, a final budget is reached. The participative budget approach is viewed as self-imposed. As a result, it is argued that it improves employee morale and job satisfaction. It fosters the "team-based" management philosophy that has proven to be very effective for 45
modern organizations. Furthermore, the budget is prepared by those who have the best knowledge of their own specific areas of operation. This should allow for a more accurate budget; in any event, it certainly removes one of the primary excuses that is used to explain why a particular budget was not met! On the negative side of the equation, a bottom-up approach is generally more time consuming and expensive to develop and administer. This occurs because of the iterative process needed for its development and coordination. Another potential shortcoming has to do with the fact that some managers may try to "pad" their budget, giving them more room for mistakes and inefficiency. More will be said about this problem shortly, but it is particularly problematic with a highly participative approach. BLENDED APPROACH: Theoretically the budget process can be portrayed as top-down or bottom-up. But, the reality is that most budgets are prepared with a blended approach where information is passed both ways. ORGANIZATIONAL STRUCTURE CONSIDERATIONS: It is very important for managers at all levels to understand how information is transformed as it passes through an organization. Review the preceding graphics, this time noting how the top-down arrows change from yellow to pink as they pass through the middlelevel leadership. Conversely, the arrows in the bottom-up approach morph from green to pink as they pass through the middle-level managers. As budget information is transferred up and down an organization, the “message” will inevitably be influenced by the beliefs and preferences of the communicators. 46
There is always a chance that information can be so transformed as to lose its original intent. Top management can lose touch with information originating on the front line, and front-line employees may not always get a clear picture of the goals and objectives originating with senior management. FLATTENING THE ORGANIZATION CHART: There are staggering differences in the organization charts of different entities. Business growth is a natural incubator for expansion of the number of levels within an organization; as a result, great care must be taken to preserve the efficiency and effectiveness of growing entities. Sometimes the very attributes that contribute to growth can be undone by the growth itself. The charts of some entities consume many pages and involve potentially dozens of "levels." Other companies may have worked to "flatten" their organizational chart to minimize the number of links in the chain of command. While these endeavors are often seen as attempts to reduce the cost of middle-level management, the overriding issue is to allow top management more clear and direct access to vital information originating with front-line employees (and vice versa). In addition to focusing on revenues and costs, the budget process should also be taken as an opportunity for continuous monitoring of the organizational structure of an entity. BUDGET ESTIMATION: One thing is sure, no one can see the future. And, budgets clearly involve a good deal of forward looking prognostication. As a result, a certain amount of error is inevitable. Accordingly, it is easy to slip into a trap of becoming cavalier about the estimates that form the basis for a budget. 47
consideration. They should have a basis in reason and logically be expected to occur. Haphazardness should be replaced by study and statistical evaluation of historical information, as this provides a good starting point for predictions. Changing economic conditions and trends need to be carefully evaluated. SLACK AND PADDING: Because budgets frequently form an important part of performance evaluation, human behavior suggests that participants in the budget process are going to try to create "breathing room" for themselves by overestimating expenses and underestimating sales. This deliberate effort to affect the budget is known as creating "budget slack" or "padding the budget." This is done in an attempt to create an environment where budgeted goals are met or exceeded. However, this does little to advance the goals of the organization. When slack is introduced into a budget, employees may fail to maximize sales and minimize costs. For example, once it is clear that budgeted sales goals will be met, there may be a reduction in incentive to push ahead. In fact, there may be some concern about beating sales goals within a period for fear that a new higher benchmark will be established that must be exceeded in a subsequent period. This can result in a natural desire to push pending transactions to future periods. Likewise, padding the planned level of expenses can actually provide incentive to overspend, as managers fear losing money in subsequent budgets if
they don't spend all of the currently budgeted funds. This has the undesirable consequence of encouraging waste. THE IMPOSSIBLE BUDGET AND EMPLOYEE CAPITULATION: At the
opposite end of budgetary slack is the phenomena of unattainable budget standards. If employees feel that budgets are not possibly achievable, they may become frustrated or disenchanted. Such a condition may actually reduce employee performance and morale. Good managers should be as alert to this problem as they are to budgetary slack. Suffice it to say that preparing a budget involves more than just number crunching; there is a fair amount of organizational psychology that a good manager must take into account in the process.
COMPONENTS OF THE BUDGET
Business processes are highly complex and require
considerable effort to coordinate. Managers frequently cite coordination as one of the greatest leadership challenges. The comprehensive or "master" budget is an essential part of the coordinating effort. Such budgets consist of many individual building blocks that are tied together in logical harmony, and reflect the financial plan for the entire organization. Careful articulation is essential. The starting point for the master budget is an assessment of anticipated sales via the sales budget. The expected sales level drives both the production plans and the selling, general, and administrative budget. Production drives the need for 49
materials and labor. Factory overhead may be applied based on labor, but it is ultimately driven by overall production. The upper portion of the following graphic is a simplified illustration of these budget building blocks. Notice that the background colors of each block reflect dependency on another budget The lower portion of the preceding graphic illustrates that the planned business activities must be considered in terms of their cash flow and financial statement impacts. It is quite easy to plan production that can outstrip the resources of a company. In addition, a business should develop plans that have a successful outcome; the budgeted financial statements are key measures of that objective. It would be very easy to expand the above to reflect additional interactions and budgets (e.g., the coordination of a long-term capital spending budget). However, the graphic would start to resemble the organization chart that was steamrolled earlier in this chapter. Little educational value would be derived by such a complex illustration. Instead, the point is to make it clear that
comprehensive budgeting entails coordination and interconnection of various components. Next is a detailed illustration showing how these budget concepts are put into operation.
SALES BUDGET: The budgeting process usually begins with a sales budget. The sales budget reflects forecasted sales volume and is influenced by previous sales patterns, current and expected economic conditions, activities of competitors, and so forth. The sales budget is complimented by an analysis of the resulting expected cash collections. Sales often occur on account, so there can be a delay between the time of a sale and the actual conversion of the
transaction to cash. For the budget to be useful, careful consideration must also be given to the timing and pattern of cash collections. 2.18 BUDGETARY CONTROL QUESTIONAIR Prepared by…… Date……….. Reviewed by…… Date………… BUDGETARY CONTROL INTERNAL CONTROL QUESTIONAIR Questions Yes No N/A COMMENTS Planning • Is there a requirement to meet financial targets in the business plan? • Does the plan include a budget? • Is the budget aligned with the risk management plan? • Is there a contingency plan in place to deal with deficits? Responsibility • Are budgetary responsibilities established? • Are staff aware of their responsibilities? • How often is responsibility reviewed? Budget Setting -When has the budget been approved? - By whom? 53
- Is this before the start of the financial year? -How has the budget been drawn up? -By whom? - Are budget holders involved in the setting of the budget? -Who reviews each budget? Is this member of staff at a senior level? -Are there guidelines on how requests for capital expenditure should be submitted? -Who produced the guidelines? -Who analyzes and reviews the business case requests for capital expenditure? -Is a reconciliation undertaken of income and expenditure to items appearing on the general ledger? -Does income and expenditure appear on the budget statements? Information -Are budget holders satisfied with information? -How often is information sent to budget holders? -Is a standard report format used? Variances -Is there a formal virement policy? -Is there a requirement for budget holders to formally account for variances? -Are variations in income and expenditure reported to budget holders and the board? -Who actions the variations and does the Board take account of this? 54
Management Information -Is there a set form of budgetary report, which goes to the Board? -Are figures reported to the -Board reconciled to that in the budgetary information passed to the budget holder? 2.19 DEFINITION OF RELATED TERMS Budget Holder
A person who has been delegated a budget, in writing, for which they are personally responsible
A person appointed by the budget holder to manage the budget on their behalf
A financial plan covering expenditure and income. It incorporates a set amount of funds, net of any income, to deliver a specific set of aims and objectives.
Predicted income and expenditure, split over periods of the financial year, based upon known, or expected activity. The forecast gives an indication as to the financial position at the year end.
The act of transferring budgets. Virement is subject to strict Treasury controls when moved between Administration, Programme and Capital Subheads. Movement within a subhead it permitted
RESEARCH METHODS AND PROCEDURES
3.1 RESEARCH DESIGN The research method selected for the study is a combination of a survey and an industrial study. The survey research method is described hereunder that: (i) It is a design in which primary data is gathered from members of the sample that represents a specific population; (ii) It is a design in which a structure and systematic research instrument like a questionnaire or an interview schedule is utilized together with the primary data; (ii) It is a method in which the researcher manipulates no explanatory variables because they have already
occurred and so they cannot be manipulated; (iii) Data are got directly from the subjects; The subjects give the data the natural settings of their workplaces; (iv) The answers of the respondents are assumed to be largely unaffected of the content in which they are brought;
The impacts of the confounding factors are “controlled” statistically; and
The aim of the research may span from the exploration phenomena to hypotheses testing (stone 1995).
The survey research method has some merit, which are to be articulated hereunder: In the survey research method, the sample of the respondents are selected in such a way as to make it low due to the utilization of big sample sizes, which results in generally low sample errors.
The survey research method also has the merit that data collection takes place in the “natural” settings of the workplace rather than an activated laboratory. Data are got directly from the respondents. The advantage that the survey yields data that suggests new
hypothesis is very illuminating. There is also the merit
that a set of systematic data collection instruments such as questionnaire interview schedules and
observation gadgets can either be used alone or in
conjunction with other instruments (stone, 1995).
3.2 Sampling Spiegel (1992) observes that sampling theory is a study of the relationship existing between a population or universe and the samples drawn from it. The population in this study is from the senior junior staff of the firms. In order to make conclusions of sample theory and statistical references to be valid, a sample must be selected as to be representative of the population (Spiegel,1992). One way in which a
representative sample may be got, is by the process of stratified random sampling. In this research work, the technique of simple random sampling is used to select the sample of 100 respondents from each group of the personnel, making a total sample size of 200.
The list of all senior and junior staff of the firm is from the personnel department of the company. The
numbers were written on a piece of paper, put in a basket and the papers were folded to cover the numbers and one of the pieces of paper was selected at a time without replacing it and any name corresponding to the number becomes a number of the sample. This method of sampling without replacement was done until the sample of 100 respondents per group of personnel was arrived at.
Population The population, in this study is the totality of the senior and junior staff of DELATRE BAZON NIG. LTD. WARRI. The sample size is 200 and this number of respondents was chosen from the population. The rationale for studying a sample rather than the population includes that:
Most empirical research work in the social science involves studying a sample in place of the population.
Statistical Laws reveal that statistics composed from the sample data are usually reasonably accurate.
Luckily, it is usually possible to estimate the level of confidence that can be placed on the results. We should note that above is only possible if the probability sample size is large enough.
3.4 Data Collection Questionnaire As earlier stated, the primary data collection
instrument in this study is the questionnaire. In the questionnaire method of primary data collection, heavy dependence is placed on verbal reports from the subjects to get information on the earnings per share and standard set.
The questionnaire has a lot of merits. It needs less skill to administer. Questionnaire can be administered to a big number of individuals at the same time. Also with a specific research budget, it is usually possible to cover a broader area. The impersonal nature of a
questionnaire, its structure and standardized wording, its order of question, its standardized instructions for recording answers might make one to conclude that it offers some uniformity from one measurement occasion to another (Selltiz et al, 1976). Another merit of questionnaire is that subjects may have a bigger confidence in their anonymity, and thus feel freer to express views they feel might be
disapproved. Another attribute of the questionnaire that is
sometimes, though not always desirable is that it might place less pressure on the subjects for immediate response (Selltiz et al, 1976).
The questionnaire also has some demerits. It has noted that for purpose of giving dependable responses to a questionnaire, respondents must be considerably
educated. Thus one of the demerits of the usual questionnaire is that it is appropriate only for with a considerable amount of education. There is also
demerit that subject may be reluctant and unable. To report on the particular subject matter. Also, if a subject misinterprets a question or give his or her answer in a batting manner, there is often a little that can be done to ameliorate the situation. In a
questionnaire, the information the researcher gets is limited to the fixed alternative answer format, when a specific answer is not available, it can lead to error (Selltiz, 1976). There is also limitation of memory in reporting on past facts. The researcher is not a policeman that can compel answers. That is, the information may not be readily accessible to subject and thus the subject may
be reluctant to put forth enough alternative information that he or she is only barely conscious of (Selltiz et al, 1996).
In this research project, a structured and undisguised questionnaire is utilized which is made up of two parts namely, the personal data section and the section on the data on the actual subject matter of the work. The questionnaire was undisguised in the sense that the purpose of the data collection which was to collect primary data for writing up the researcher’s ND project was made know to the 200 respondents. The
questionnaire was structured in the sense the questions are logically sequenced and are to be asked to the respondents in the same manner and no follow up questions are to be allowed. Some of the questions are of the fixed alternative answer format type. Ten (10) of the questions have yes or no answers,
Ten (10) of the questions have alternative answer for the respondents to tick. The structured questionnaire has the merit that it yields data that is easier to analysis than data produced by an unstructured questionnaire. Also the structured nature diminishes both researcher’s and research instrument biases. It however has the demerit that the rigidity of the research instrument diminishes the amount of information that could be got. Interview The method of communication of the research
instrument is by means of the personal interview. The method has the merit that it produces a better sample of the population than either mail or the telephone methods. It also has the merit that it gives a very high completion and response rates. It has the merit that the interview has a bigger sensitively
misunderstandings by the respondents and gives a chance for clarification of misunderstood questions. It
has the merit that it is a very feasible method (Selltiz et al, 1976). The personal interview method has the demerit that it is more costly than the mail or the telephone methods of communication of a
questionnaire. Observations In addition to questionnaire and face-to face interviews, observation was also carried out. This was to enable the researcher to witness by herself the officers of this firm and to interact with these people.
3.5 Field Work The researcher and three other field data collectors did the fieldwork. The field data collectors were other classmates also offering the full-time ND program, who have also offered research methodology. They had no problem gaining entrance into the office under
consideration since one of them has a friend working there. They were to be trained by the researcher on
how to greet the respondents and how to tick the questionnaire correctly and honestly. 3.6 Description of Data Presentation and Analysis Tools The data presentation tools are simple bar charts, histograms, and pictorial tables. The most important parts of a table include; (a) (b) (c) (d) (e) (f) Table numbers Title of the table Caption Stub or the designation of the rows and columns The body of the table. The head note or prefatory note or explanatory just
before the title. (g) Source note, which refers to the literally or scientific source of the table (Mills and Walter 1995) Anyiwe (1994) has observed that a table has the following merits over a prose information that; (f) A table ensure an easy location of the required figure;
Comparisons are easily made utilizing a table than a prose information;
Patterns or trends within the figures which cannot be visualized in the prose information can be revealed and better depicted by a table; and A table is more concise and takes up a less space than a prose formation: The data is to be analysed by means of percentage, cross tabulation and the chi-square test of population proportions for testing the two hypothesis. Percentages express the ratio of two sets of data to a common base of 100. the researcher made us of the computer program called SPSS (statistical package for social science) to carry out the computation of the hypothesis testing.
3.7 limitation of The Study
Research work is subject to one form of limitation or the other, mine is not an exemption. It was the initial thought of the researcher that the exercise was easy but the contrary was the case. As a student, several academic demands compete with the limited but precious time available. This implies that none of the competing exercise could be effectively handled without the others being worse off. This was my situation. Although the time expended was too small to do justice to the study. The opportunity cost in terms of other equally important activities forgone or cursorily attended to, was made. The researcher faces some embarrassment arising from low-level educated staff who could not understand the essence of the research work as this.
DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION In the previous chapter, the research methods and procedures have been handled. In this chapter the data presentation and analysis are to be done. The data is to be presented by means of tables, two simple bar charts, one histogram and one pie chart to make it amenable for further analysis. By analysis is meant the act of noting relationship and aggregating the set of
variables with similar attributes and also breaking the unit of their components (Mills and Walters 1995). In this research work, the research accepts the
contention of Podsakoff and Dalton (1995) that the factual information from the data can be used as a basis for reasoning, calculation and discussion. Apart from the heading above, the other headings in this chapter includes:
Data Presentation, Percentage analysis Cross-tabulated analysis Hypothesis testing
4.2 DATA PRESENTATION TABLE1
THE SUMMARY OF THE PERSONAL DATA OF THE RESPONDENTS
1 SEX Male Female Total Marital Status Married Single Total AGE 21-30 years 31-40 years 41-50 years 51-60 years Total HIGHER EDUCATIONAL QUALIFICATION DIPLOMA OND HND FIRST DEGREE SECOND DEGREE NIM TOTAL FREQUENCY 150 50 200 130 70 200 90 90 10 10 200 Angles suspended in degree
10 30 80 20 40 20 200
18 54 144 36 32 36 360
The marital statuses of the 200 respondents it is found that 130 of them are married while 70 of them are
single. For the ages of the 200 respondents they are 2171
30 years, 31-40 years, 51-60 years with frequency of 90 and 10 respectively. For the highest educational
qualification of the 200 respondents they are diploma, OND, HND, First Degree, Second Degree, NIM. and they have frequencies of 10, 30, 80, 20, 40 and 20
Figure 4.1 below shows the simple bar chart of the data on the sex of the respondents. FIGURE 4.1: THE SIMPLE BAR CHART OF THE DATA ON THE SEX OF THE RESPONDENTS
GENDER OF THE RESPONDENTS
16014012010080 60 40 20 0
GENDER OF THE RESPONDENTS
Frequency percentage Valid Cumulative Percent Percent MAIL 150 75.0 75.0 75.0 FEMALE 50 25.0 25.0 100.0 Total 200 100.0 100.0
Source: from data in table 1
From figure 4.1 above, it is shown that male respondents have the modal frequency of 150 of the 200 respondents while the female respondents have the frequency of 50 of them. Figure 4.2 below shows the simple bar chart of the data on the marital statuses of the respondents. FIGURE 4.2: THE SIMPLE BAR CHART OF THE DATA ON THE MARITAL STATUSES OF THE RESPONDENTS
140 120 100 80 60 40 20 0
MARITAL STATUS OF THE RESPONDENTS
Status frequency Percentage Valid Cumulative Percent Percent MARRIED 130 65.0 65.0 65.0 SINGLE 70 35.0 35.0 100.0 Total 200 100.0 100.0
From figure 4.2 above, it is shown that the married respondents have the modal frequency of 130 out of the 200 respondents while the single respondents have the
frequency of 70 of them.
FIGURE 4.3: THE HISTOGRAM OF THE DATA ON THE AGES OF THE RESPONDENTS. AGES OF THE RESPONDENTS
100 20 40 60 80
Std. Dev = 78 Mean = 1.7 N = 200.00
AGES OF THE RESPONDENTS Categories Frequency Percentage 21 TO 30 YEARS 90 45.0 Valid Cumulative Percentage Percent 45.0 45.0 45.0 5.0 5.0 100.0 90.0 95.0 100.0
31 TO 40 90 45.0 YEARS 41 TO 50 10 5.0 YEARS 51 TO 60 10 5.0 YEARS SOURCE: From the data in Table 1. Total 200 100.0
From figure 4.3 above, it is shown that the age classes limit are 20.5-30.5 years, 30.5-40.5 years, 40.5-50.5 years and 50.5-60.5 years with frequencies of 90, 90, 10, and 10 out of 200 respectively. This shows that this is bi-modal distribution as the age classes of 20.5-30.5 years and 30. 540.5 years have a frequency of 10. Figure 4.4 below shows the pie chart of the data on the highest educational qualifications of the 200 respondents.
THE PIE CHART OF THE DATA ON THE HIGHEST EDUCATIONAL QUALIFICATIONS OF THE 200 RESPONDENTS
DIPLOMA OND 5%
15% 10% 20% 40% 10%
EDUCATIONAL QUALIFICATION OF THE RESPONDENTS
Educational Frequency Percentage Valid Cumulative level Percentage Percentage DIPLOMA 10 5.0 5.0 5.0 OND HND FIRST DEGREE SECOND DEGREE NIM Total 30 80 20 40 20 200 76 15.0 40.0 10.0 20.0 10.0 100.0 15.0 40.0 10.0 20.0 10.0 100.0 20.0 60.0 70.0 90.0 100.0
SOURCE: from the data in table 1.
Qualifications are Diploma, O.N.D, First Degree, Second Degree and NIM and the sustained angles in degree is equal to 180, 540, 1440, 360, 720 and 360 and respectively at the center of the circle.
CROSS-TABULATED ANALYSIS Table: 3 below show the analysis of the statuses of the 200 respondents
Cross- tabulation 1
DOES BUDGETARY CONTROL OPERATES IN VARIOUS COST CENTRES AND DEPARTMENTS WITH EFFICIENCY AND ECONOMY?
2 2 7 9
DIPLOMA OND HND FIRST DEGREE SECOND DEGREE NIM Total
6 19 14 40 21 100
2 31 10 43
10 19 91 19
2 39 39
40 21 200
respondents (out of 200 said no. this proved that electronic commerce can speed up economic
development. Cross-tabulation 2
DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF A BUSINESS ENTERPRISE?
DIPLOMA OND HND FIRST DEGREE SECOND DEGREE NIM
10 19 14
NO Total ANSWER 10
19 91 9 19 40 21 200
40 21 104
The above table indicates that electronic commerce can make doing business more or less expensive. 104 respondents out of 200 said yes. While 40 did not agree with the fact.
Chi-Square Test (1) DOES BUDGETARY CONTROL OPERATES IN VARIOUS COST CENTRES AND DEPARTMENTS WITH EFFICIENCY AND ECONOMY?
Observed F YES NO DON’T KNOW NO ANSWER
50.0 50.0 50.0 50.0
50.0 -7.0 -11.0 -32.0
Decision Accept Reject Reject Reject
100 43 39 18 200
Chi-Square Test (2) DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF A BUSINESS ENTERPRISE?
Observed F YES NO DON’T KNOW NO ANSWER
50.0 50.0 50.0 50.0
54.0 -10.0 -3.0 -41.0
Decision Accept Rejected Rejected Rejected
104 40 47 9 200
The observed value of the dependent variable minus the value predicated by the regression equation, for each case. Large absolute values for the residuals indicate that the observed values are very different from the predicted values. SOURCE: From the questionnaires administered.
DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF A BUSINESS ENTERPRISE?
DOES BUDGETARY CONTROL OPERATES IN VARIOUS COST CENTRES AND DEPARTMENTS WITH EFFICIENCY AND ECONOMY?
note: df = degree of freedom
ALTERNATIVE HYPOTHESIS 1. Does budgetary control operates in various cost centres and departments with efficiency and economy?
Looking at the chi-square test 1 above, the computer program of the observed number or frequency is 100, expected number or frequency is 50 making Large absolute value for the residual and from the statistics, we have the chi-square of 73.880 at 3% degree of freedom. We accept the hypothesis. 2. DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF A BUSINESS ENTERPRISE? The chi-square test 2 above, the computer program of the observed number or frequency is 104, expected number or frequency is 50 making Large absolute value for the residual and from the test statistics, we have the chi-square of 94.120 at 3% degree of freedom. We accept the hypothesis.
Budgetary control do not operate in various cost centres and departments with efficiency and
economy. Looking at the hypothesis 1 above, the computer program of the observed number or frequency is 43, expected number or frequency is 50 making a negative absolute value for the residual. We reject the hypothesis. 2. Budgetary control does not help in eliminating wastes and raises the profitability position of a business enterprise. On the chi-square test 2 above, the computer program of the observed number or frequency is 40, expected number or frequency is 50 making negative absolute value for the residual so we reject the hypothesis.
FINDINGS, SUMMARY AND CONCLUSION
5.0 INTRODUCTION In this chapter, the researcher deals with the findings as regards anatomy of budget and budgetary control in business organisation. The work is summarized with the conclusion drawn
During the research work, the researcher found out that……………….. Budgets can take many forms and serve many functions. Budgets can provide the basis for detailed sales targets, staffing plans, inventory production, cash investment/borrowing, capital expenditures (for plant assets, etc.), and on and on. Budgets can provide benchmarks
against which to compare actual results and develop corrective measures. Budgets give managers "preapproval" for execution of
spending plans. Budgets allow managers to provide forward looking guidance to investors and creditors. Budgets are necessary to
convince banks and other lenders to extend credit. She also found out that …..All budgets must be profiled across the financial year, and must reflect the expected income or expenditure appropriate to the periods within the financial year; Budgetary control is technique whereby actual results are compared with A control budgets.
Budgetary control compels business administration to think about the future.
In summary, the researcher has been able to unveil the purpose of budgeting as a means of…. -Providing a forecast of revenues and expenditures -Enabling the actual financial operation of the business to be measured against the forecast and also showed that Budgets are valuable tools in good management. To plan, monitor, control and adapt resources to meet agreed business objectives whilst remaining within notified limits management should consider 1. Potential Risks which are:.. • Inappropriate allocation of resources – failure to meet business objectives • Inability to adapt to unexpected events • Poor decision-making • Inadequate / inaccurate records • Fraud/ Theft – financial loss • Departmental embarrassment • Business interruption
• Inefficient use of resources And effect Possible Controls on: • Delegation letters • Forecasting • Variance Analysis • Business planning (including challenge – review plan / planning process) • Communication between Budget Holders and Budget Managers • Regular Finance Meetings. • Use and dissemination of Phoenix reports. • Training and guidance (including non-finance staff). • Continuously challenging assumptions used in setting plan. • Area & Central Monitoring – up and down the line • Exception reporting • Process to capture and record information • Consistent methodology – • Standardisation of output
5.3 CONCLUSION We need to know that many financial reporting frauds have their genesis in overly optimistic budgets that subsequently lead to an environment of "cooking the books" to reach unrealistic goals. These events usually start small, with the expectation that time will make up for a temporary problem. To maintain organizational integrity, senior-level managers need to be careful to provide realistic budget directives. Lower-level managers need to be truthful in reporting "bad news" relative to performance against a budget, even if they find fault with the budget guidelines.
The formal budgeting system has the following major benefits. 1. Budgeting due to its formal time table or schedule compels managers to think ahead apart from taking care of their current activities.
2. Budgeting, due to its approval and authorization by the superiors, provides definite expectations that are the best framework for judging subsequent performance. 3. Budgeting helps in coordinating the various departments of the organization. The budget harmonizes the goals (objectives) of the individual departments into the
organization wide goals (objectives).
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