Table of contents.

1. Budget.
2. Budgeting.
3. Budgetary control.
4. Objective of budgetary control.
5. Advantage of budgetary control.
6. Installation of budgetary control system.
7. Budget report format.
8. Case study.
Budgetary Control and Reporting Format
With Case study.

Budget.
According to Institute of Management Accounting London define
budget as,
“ a plan expressed in money it is prepared and approve prior to the
budget period and may show income ,expenditure and the capital to be
employed may be drawn up showing incremental effect on former
budgeted or actual figures or be compiled by zero based budgeting”.
A budget is a precise statement of financial and quantitative
implication of the course of action that management has decided to
follow in the immediate next Period of the time(usually a year).
Budgeting.
Budgeting is a complete process of Designing, implementing and
operating budget. The main emphasizes in this short term budgeting
process involve the provision of a resource to support the plan which
are being implemented.
Budgetary control.
The chartered Institute of Management Accountants London
define budgetary as “the establishment of budgets, relating the
responsibility of the executive to the requirement of the policy and the
continuous comparison of the actual with budget is result either to
secure by the individual action the objective of that policy or to
provide a firm base For its revision”. budgetary control system secure
 control over the performance and the cost in the different part of the
business.
The budget is a blueprint of projected plan and budgetary control is act
of adhering to the planning in fact budgetary control involve the
continuous comparison of the actual results with the budgets and
taking the appropriate remedial action promptly.
For example,
To navigate the ship captain requires his navigating officer to work
out the course ahead and constantly to check his ship’s position
against the predetermined one if the ship is of its course the navigating
officer must report his captain immediately so that the captain may
take a prompt action to regain his correct course correct course”
Like that even budgetary control involve establishing budget, by
comparing the actual attainment against the budget and by taking
corrective action and remedial measure or revision of the budget if
necessary.

Objectives of budgetary control.

 To use different level of management in Cooperative and Endeavour
for the achievement of the objective of the firm.
 To facilitate centralised control over delegated authority and
responsibility.
 To achieve maximum profitability back planning income and
expenditure through optimum use of available resources.
 To see that the phone is not deflected from marching towards the long
term objective without being overwhelmed by the emergency.
 To ensure adequate working capital in other resources for efficient
operation of the business.
 Advantages of the budgetary control.
1. Budgeting control am at maximization of the profit through effective
planning and control of the income and expenditure director capital
and resource to the best in the most profitable channel.

2. There is a planned approach to expenditure and financing of the

business so that the economy is affected in the utilisation of the fund
to the optimum benefit of the concern.

3. It provide a clear definition of the objective and the policy of the

concern and a tool for objecting this policies to a periodic
examination.

4. The task of the managerial coordination is facility through budgetary

control.

5. Since each level of the management is aware of the task and is fully
conscious as to best way by which is to be performed, maximization
effective utilisation of the men ,material and Research can be attained.

6. Reports our furnish under the principle of management of control by

exception only deviation from budget which point out the weak spot
and efficiency are properly look into.

7. Budgetary control system assist delegation of authority and is a

powerful tool of responsibility accounting.
 Limitation of the budgetary control.
1. Budgetary control start with the formulation of the budget Pizza near
estimate therefore the adequacy or the other wife of the budgetary
control system to a very large extent depend upon the adequacy of
accuracy with which estimates are made.

2. Budget are meant to deal with the business condition which are
constantly changing their for budget estimate loss much of their
usefulness under changing condition because of the rigidity it is
necessary that budgetary control system should be kept adequately
flexible.

3. The system of budgetary control is based on the quantitative data and

represent only and impersonal appraisal to the conduct of business
activity use unless it is supported by proper management of personnel
administration.

4. It has often been found that in practice the organisation of the

budgetary control system become top heavy and therefore costliest
specifically from the point of view of small concern.

5. Budget and budgetary budget and budgetary control have given rise to
a very unhealthy tendency to be regarded as a solvent of all business
problem this has resulted in a very lukewarm human effort to deal with
the search problem and ultimately result in failure of the budgetary
control system.
 Installation of the budgetary control.
The following steps should be considered in detail for sound budget
and for successful implementation of the budgetary control system
1.Organisation chart: an organisational chart is a statement defining
functional representative of Executive responsible for accomplishment
of the organisational objectives ,This chart shows:
 Functional responsibility of the particular executive.
 Delegation of authority to various levels.
 Relative position of a functional head with heads of other function and
organisation chart for budgetary control may be as follow.
2. Budget centre: Budget Centre is a section of organisation of
undertaking defined for the purpose of budget control budget Centre
must be separately delimited because of the circuit project has to be set
with the help of the head of the department concern for example
production manager has to be consulted for the preparation of
production budget and the finance manager has to be consulted for
preparation of cash budget.

3. Budget manual: A budget manual is a document which sets out

standing instruction governing the responsibility of the person and the
procedure, form and the record relating to the preparation and use of
the budget it is a booklet content standing instruction regarding the
procedure to be followed and I am scheduled to be observed.

4. Budget committee:
The budget committee is a group of representative of various function
in an organisation, it is a powerful force in knitting together the
various activities of the business and enforcing real control over the
operations.

5. Budget controller:
Two line of the various function of budget committee, to bring them
together and to co-ordinate the effort in method of preparation of
target figures, there should be a person usual designated as project
controller who can provide a ready data relating to all functions. He is
more or less a secretary of budget committee.
6. Budget period:
CIMA defence budget period as “the period for which budget is
prepared and used, which may then be subdivided into control
period” budget period has been divided into long term budget period
and short term budget period, the short term budget period itself
indicate that it is it could be bifurcated into yearly and quarterly
budget, long term budget provide the perspective since one would be
able to view of what it is likely to be achieved and what the chief
problems are likely to be such as competition from product.

7. Budget key factor:

Budget key factor are the factor which influence the budget of firm.
For example if sales department could only sell 50000 units it is of no
use producing 100000 unit by Production department, vice versa is
production department has the capacity of producing 50000 units then
sales department cannot sell 100000 unit.

8. Budget report:
Establishing budget in in itself is of no use unless a comparison is
made regularly between the actual expenditure and the budget
allowance and the results should be reported to the management ,for
this purpose budget report should show the comparison between the
actual and the budgeted expenditures and it should be presented
periodically and promptly, the report should be prepared in such
manner that they reveal the responsibility of the department of the
executive and give reason for the various so that a proper corrective
actions may be taken.
 Budget report to be effective in the purpose must be:

 Simple in its form so as to be easily intelligible to the recipient

concerned it should be a suitable heading and make the period in
which it relates.
 Regularly and promptly presented.
 Design to give only the essential information required and avoid
unnecessary details.
 Express as far as possible in direct figures.
 Correlated to correlated to money value whenever possible.
 Free from personal bias of the person preparing it.
 Dated and signed by those who prepare and check it.

WHY COMPARE ACTUAL AND BUDGET?

One of the objectives of budgeting is to provide a base against which
actual performance can be measured. This is only worth doing if
action will be taken as a result .In too many organisations the
production of results compared to budget is seen as the end of the
process. If no action is taken on the basis of management accounts
then there is little point in producing them and even less point in
wasting management time discussing them.
BUDGET REPORT
Department............................
Period...........................
Expense Budget Difference Cumulative Reasons
Actual Variance Rs
Rs Increase RS
decrease
RS
RS

A.
Controllable
Repairs
Mach.
Maintenance
Eject.
maintenance
Power
Lighting
Lubrication
etc.
B. Non
controllable
Expense
Floor space
General
Prorated
Total
Date of preparation................... Copies to:
Prepared by........................ 1.................................
Checked by......................... 2.................................
Submitted by..................... 3.................................
Case study.
Prepare cash budget of m/s novan television and co on the basis of the
following information for the first six months of 2014
(a)Cost and prices unchanged.
(b) Cash sales 25% and credit sales – 75%.
(c) 60% of credit sales are collected in month after sales,30%in the 2
month and 10% in the third . No bad debit is anticipated.
(d)Sales Forecasts are as follows:
RS RS
October 2013 1200000 March 2012 800000
November 2013 1400000 April 2012 1200000
December 2014 1600000 May 2012 1000000
January 2014 600000 June 2012 800000
February 2014 800000 July 2012 1200000
(e) Gross profit margin 20%
(f) Anticipated purchase
RS
January 2014 640000
February 2014 640000
March 2014 960000
April 2014 800000
May 2014 640000
June 2014 960000
(g) Wages and salaries to be paid:
January 2014 120000
February 2014 160000
March 2014 200000
April 2014 200000
May 2014 160000
June 2014 140000
(h) Interest on RS 1000000 @12% on debentures in due by the end of
March and June
(I)Excise deposit due in April Rs 200000
(j) Capital expenditure on plant and machinery planned for June
Rs120000
(k) Company has a cash balance of Rs 400000@31/12/2013
(l) Company can borrow on monthly basis.
(m) Rent is Rs 8000 per month
M/s Novan Television Company
Cash budget for six months, January to June 2014
January Febru March April May June
Rs ary Rs Rs Rs Rs
Rs
Receipts
Cash 15000 20000 20000 30000 25000 20000
sales 0 0 0 0 0 0
Collectio 11250 73500 61500 58500 78000 78000
n form 00 0 0 0 0 0
debtors
Total 12750 93500 81500 88500 10300 98000
receipts( 00 0 0 0 00 0
A)
Payments
Purchases 64000 64000 96000 80000 64000 96000
0 0 0 0 0 0
Rent 8000 8000 8000 8000 8000 8000
Wages 12000 16000 20000 20000 16000 14000
and 0 0 0 0 0 0
salaries
Excise 20000
deposits 0
Interest 30000 30000
Capital
expenditu 12000
re 0
Total 76800 80800 11980 12800 80800 12580
payment 0 0 00 0 0 00
(B)
Balance
Net cash 50700 12700 (38300 (32300 22200 (27800
receipts( 0 0 0) 0) 0 0)
A-B)
Cash 40000 90700 10340 65100 40000 55000
balance at 0 0 00 0 0 0
the being
of the
month
Total 90700 10340 65100 32800 62200 27200
0 00 0 0 0 0
Borrowin 72000 (7200 12800
g 0) 0
/(surplus)
Cash 90700 10340 65100 40000 55000 40000
balance at 0 00 0 0 0 0
the close
of the
month

Working note
Oct Nov Dec Jan Feb Ma Apr Ma Jun
201 201 201 201 201 rch il y e
4 3 3 4 4 201 201 201 201
Rs Rs Rs Rs Rs 4 4 4 4
Rs Rs Rs Rs
To 120 140 160 600 800 800 120 100 800
tal 000 000 000 000 000 00 000 000 00
sal 0 0 0
es
Cr 900 105 120 450 600 600 900 750 600
edi 000 000 000 000 000 000 000 000 000
t 0 0
sal
es

1st 720 270 360 360 540 450

mo 000 000 000 000 000 000
nth
60
%

2nd 315 360 135 180 180 270

mo 000 000 000 000 000 000
nth
30
%
3rd
mo 900 105 120 450 600 600
nth 00 000 000 00 00 00
10
%

112 735 615 585 780 780

500 000 000 000 000 000
0

For example:
60 % of credit sales in December 2013
30% of credit sales in November 2013 and
10% of credit sales in October 2013