The report would give a detail on the following topics:
1. Budget


What is a budget? Why budget? What are the characteristics of budgeting? What are its advantages? Problems of budgeting Budgeting cycle

2. Budgetary control

What is budgetary control? Advantages of budgetary control? Applicability of budget and budgetary control


3. Meaning of strategic planning and forecasting -

Difference between strategic planning vs. Budgeting and forecasting vs. Budgeting

4. Budgetary control and responsibility centres
5. Types of budget


What are the types of budget? What are its characteristics? Advantages and disadvantages

I. Introduction

Planning and control are major activities of management in all organisations. Budgets are central to the process of planning and control. The involvement with budgets places the management accountant as a key player in the provision of management information. Most organisations employ some form of budgeting, those of any size have quite formal mechanisms. A large survey of over 300 companies supported by ACCA, on which the author was engaged, reported recently that almost all respondents used some form of budgeting and budgetary control.

Budgets can be prepared for and used by anyone and anything. That is, we can prepare and use personal budgets and organisations, ministries and non profit making organisations can all use them. Budgets, by definition, have to be prepared in advance; and for this reason, they are often referred to in terms of their being part of a feed forward system. Feedback is a term frequently heard both in accounting and ordinary use. Feed forward, on the other hand tends to be less frequently heard, yet this word incorporates the most important aspect of budgeting: looking at situations in advance, thinking about the impact and implications of things in advance, and attempting to take control of situations in advance. Budgets A budget is a plan expressed in quantitative and money terms. Budgets need to be prepared and approved in advance of the period in which they are to be used. Budgets can include some or all of income, expenditure, and the capital to be employed. Moreover, a budget can be drawn up for an entire organization, any segment of the organization such as a department or sales territory or division, or for a significant activity such as the production and sale of a specific product.

they under estimate sales and over estimate costs. a demanding target. there are observations from other studies that some managers. They see it as in their interests to incorporate ‘slack’ into the budget. after a run of mediocre results. a useful forecast of actual outturn. then poorer performance may result from that person’s ‘withdrawal’ from the task than would apply if a less demanding target had been set.We should also add that a budget can include non monetary as well as monetary information in it. note that the syllabus for paper 8 does require appreciation of behavioural issues at an introductory level. is unlikely to be achieved most of the time. They no doubt feel the need to . demanding targets extract better performance than weak ones. budgets have implications for human behaviour. totally unattainable targets tend to be counterproductive. A practical consequence of this is that a budget which might get the best performance out of a manager. Budgets and management behaviour Some would argue that any problems which arise out of the budget system are a result of how managers use the information provided by it and how such use affects the information that is entered into the budget. Managers also engage in games of building up slack in good years and converting it to reported profit in poor years. The precision which is applied to a target is seen to be important because if targets are not accepted by an individual. A few points on this are briefly mentioned below. That is. deliberately overstate revenues and understate cost estimates. That is. It is not therefore. This is up to a point. Furthermore. Conversely a budget that is an accurate forecast of what is likely to be achieved will only motivate a modest level of performance. Budget as forecasts General observations and academic experiments have suggested that managers behave conservatively when required to make budgets which are to be used as forecasts for future achievement. It is also important that managers achieve their targets frequently enough to give the positive reinforcement in their efforts. Budgets as targets From many psychological studies it is pointed out that better performance is achieved when targets exist than when this is not the case. Conversely.

and the process ends once the budget period has ended. who will discuss this draft with their departmental staff (with a view to adoption or amendment). they run the risk of not achieving the financial budget. This means the budgeting process is a very lengthy process: typically. for example.make an immediate favourable impact by promising better performance in the future. perhaps long-term. as a consequence. Problems can occur here because the budgets are quite narrow specifications of what are desired organisational outcomes. The budgetary planning phase is completed in March (ready for an April start) when the printed budget book is published and the approved estimates are put into the financial control . tasks are interdependent. of course. Management might not place emphasis on other important aspects of their jobs such as maintaining quality or staff morale if. In reality. give us some insight into the beginning of the budgeting cycle when they present a "Timetable for preparation of detailed revenue budget and capital programme" for a Local Authority. the pre budgeting phase can begin up to a year before the budget period starts. bonus. Alternatively. They show that the process starts in June in the year preceding the budget period with the draft budget manual being sent to Finance Officers. there are many dimensions of performance and these are not all easily quantified and certainly not in financial terms. Placing emphasis on budget achievement can have repercussions on other. that this merely delays the problem for which these managers are subsequently censured when they fail to hit these optimistic targets. status or enhanced promotion prospects are often linked to budget attainment. stressing the need to achieve these budget results may result in the budget being met but this may be as a result of manipulation by managers of both the budget and actual results. Organisations are complex. It may be. for a large organisation. The budgeting process It would be easy to dismiss the budgeting process as beginning when the first budget is prepared. and as being complete when the master budget is finalised. Budgets in performance evaluation A further use of budgets is as a basis for setting performance standards and rewards. Jones and Pendlebury (1984). aspects of organisational performance. the budgeting process begins for many organisations a long time before the budget period begins.

These divisions of a budget period are control periods. can be changed. By considering these problems. if necessary. that many businessmen do not prepare budgets for their businesses. . The budget period The budget period is the period for which a set of budgets is prepared: typically the budget period is of one year's duration. There is no reason why a budget period has to be one year. most importantly. The purpose of this part of the chapter is to demonstrate that budgets are useful. whereas others have thirteen period years (all of an equal four week period). and will be designed to coincide with an organisation's financial. In certain situations. Most organisations will divide their budget period into calendar months (or periods). the budget period will be analysed according some particular feature of the work in that situation: for example. or fiscal. The benefits of budgeting Many of us prepare budgets on a personal level: how much is my income for the month? How much am I going to spend? and. but this time of the budgeting for a Police Authority in the UK). Thus. we will be considering ways in which your budgeting system. to overcome them. stockbrokers have their year divided into "accounts" of two and three weeks' duration. We will also see some of the problems underlying organisations: the nature of the organisation and the interactions of the people working in them. however. (Colville (1989) presents a similar view. even though managers prepare budgets for their relatively simple lives. year. We will see that a budget is a necessity not a luxury. or the organisation itself. but typically it is. then the budget will clearly be linked to that project. On the other hand. they prefer to let cash inflows and outflows look after themselves. A three month project will have a budget covering the whole project and will thus be a three months budget. informative and communicative. is there anything left over? It seems true. when it comes to the much more complex situation of their business.system. if we are dealing with a project.

· Departmental conflict arises due to: a) Disputes over resource allocation b) departments blaming each other if targets are not attained. i. Wise budget planners continuously complete the cycle of steps shown.e. · Budgets can be seen as pressure devices imposed by management. budgeting should begin with the overall goals of the LEA/school technology plan and the school’s instructional program as outlined in the school improvement plan—and these goals should be reflected in the budget priorities and details. "we had better spend it or we will lose it". thus resulting in: a) Bad labour relations b) inaccurate record-keeping. This is often coupled with "empire building" in order to enhance the prestige of a department. · Waste may arise as managers adopt the view. .g. particularly in perception terms. Responsibility versus controlling.Problems in budgeting Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages. · Managers may overestimate costs so that they will not be blamed in the future should they overspend. Effective budget development is a continuous cyclical process. The Budget Cycle As the financial component of program planning. · It is difficult to reconcile personal/individual and corporate goals. e. power costs. some costs are under the influence of more than one person.

a budget is a statement setting out the monetary.II. to set . Budgetary control also relates to the continuous comparison of actual with budgeted results: it does this to try to ensure that the objectives of that policy are achieved. and then once we have done whatever it is that we wanted to do. In summary. Budgetary Control Budgets are simply exercises in calculation unless they are used. we check to see if we kept to our budget. we prepare budgets to help us achieve those ideas. When we use a budget. Budgetary control is the analysis of what happened when those plans came to be put into practice. we have some basic ideas of what we want to do. or to provide a basis for the change of those objectives. which is probably the most important feature of a budgetary planning and control system. we do so as part of a system of budgetary control. and what the organisation did or did not do to correct for any variations from these plans. numerical or non quantitative aspects of an organisation's plans for the coming week or month or year. That is. Forces management to look ahead. Advantages of budgeting and budgetary control There are a number of advantages to budgeting and budgetary control: · Compels management to think about the future. Budgetary control relates to the establishment of budgets relating the responsibilities of budget holders the needs of a policy.

Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and noncontrollable factors. we will see that budgeting systems cannot just be imposed on an organisation nor do they run themselves. Control is provided by comparisons of actual results against budget plan. Applicability of Budgeting and Budgetary Control Budgeting can be applied to virtually every situation. . Managers at all levels often resent budgets and budget targets for a variety of reasons. · Promotes coordination and communication. · Provides a basis for performance appraisal (variance analysis). Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control. · Enables remedial action to be taken as variances emerge. manufacturing. operation and (ideally) each manager.out detailed plans for achieving the targets for each department. In all of these situations. It does not matter whether we work in the Public or Private Sector of the Economy. · Economises management time by using the management by exception principle. to anticipate and give the organisation purpose and direction. budgeting and budgetary control is of use to you. We may work for a profit making business or a non profit making business. Your company may be engaged in trading. A budget is basically a yardstick against which actual performance is measured and assessed. there are many issues underlying the use of a budgeting system that need careful consideration. · Motivates employees by participating in the setting of budgets. or providing a service. · Clearly defines areas of responsibility. · Improves the allocation of scarce resources. For example. As we will see.

III. The Planning Cycle Most organisations currently plan their business on an annual cycle structured around the financial year – top-down strategic planning by senior management starts about six months out. Fuelled by the demands of the web-driven world for instant access to information. a detailed bottom-up exercise designed to align proposed cost centre expenditure with the top-down plan for the coming year. In the first of a series of six articles. questionable accuracy. financial managers are expected to be able to predict the financial and operational impact of each big decision in days. Once the new year starts. The truth is often far removed – most management accountants still rely on a planning methodology designed in the early Twentieth Century and a bewildering tower of spreadsheets. Difference between strategic planning. the budget will start to be revised in a forecasting process that tends to be high-level. leading into the annual budget. . and the ever-present danger of the spreadsheet tower collapsing under the strain mean that most financial managers dread the planning process. and the first month's actuals are in. FSN contributing editor Steve Bows examines aspects of a new process for the Twenty-First Century that combines best-practice techniques with the latest in enabling technology to help take the stress out of the planning cycle. budgeting and forecasting The requirement for accurate and timely forecasting of corporate results increases every day. or even hours. Long hours. quarterly and less structured than the annual budget.

Based on an outdated model of a command-and-control business structure. Budgetary control and responsibility centres Responsibility Centres A responsibility centre is an organizational subsystem charged with a well-defined mission and headed by a manager accountable for the performance of the centre. it is the annual budget process that leads to most dissatisfaction amongst all concerned. being overtaken by back-of-an-envelope forecast calculations that are produced in a hurry by senior management. IV. There are two general types of cost centres: engineered expense centres and discretionary expense centres. and consumes most time and money. This battle can rage for months. revenues centres. in response to changing market conditions or big new ideas. "Responsibility centres constitute the primary building blocks for management control. Worst of all. Engineered costs are usually expressed as standard costs.Out of these three distinct planning activities." It is also the fundamental unit of analysis of a budget control system. the process engenders mistrust between senior and middle management as both sides engage in a highly-charged political battle to secure a lower or higher cost budget respectively for the year ahead. distracting attention from external events and draining the energy of all involved. A discretionary expense centre is a responsibility centre whose budgetary performance is based on achieving its goals by operating within predetermined expense constraints set through managerial judgement or discretion. Often this forecast "process" is carried out without consulting the cost centres. the hard-fought budget outcome becomes redundant within a matter of months. further undermining the morale of middle management. Revenue Centre . A responsibility centre is an organization unit headed by a responsible manager. Cost Centre A cost centre is a responsibility centre in which manager is held responsible for controlling cost inputs. profit centres and investment centres. There are four major types of responsibility centres: cost centres.

with a divisional organization designs. Through this system. Investment Centre An investment centre is a responsibility centre whose budgetary performance is based on return on investment. . the purpose of ZBB is to reevaluate and reexamine all programs and expenditures for each budgeting cycle by analyzing workload and efficiency measures to determine priorities or alternative levels of funding for each program or expenditure. Zero based budgeting Purpose of Zero-Base Budgeting The Objective of Zero Based Budgeting is to “reset the clock” each year.to start at zero. discretionary expense centre. Resources are not necessarily allocated in accordance with previous patterns and consequently each existing item of expenditure has to be annually re-justified.A revenue centre is a responsibility centre whose budgetary performance is measured primarily by its ability to generate a specified level of revenue. each program is justified in its entirety each time a new budget is developed. The Traditional incremental budgeting assumes that there is a guaranteed budgetary base-the previous year’ level of appropriations -and the only question is how much of an increment will be given. Profit Centre In a profit centre. the budget measures the difference between revenues and costs. building a case for their spending as if no baseline existed. In contrast. The uses of responsibility centres depend to a great extent on the type of organization structure involved. Types of budget 1. it is possible use profit centres because the large divisions in such a structure usually have control over both the expenses and the revenues associated with profits V. Put differently. Engineered cost centres. and revenue centres are more often used with functional organization designs and with the function units in a matrix design. Zero Based Budgeting implies that managers need to build a budget from the ground up.

However. The first known application of zero-base budgeting was by the U. • • It produces in a readily accessible form more and better management information. Jimmy Carter’s use of it in Georgia in the early 1970s. This in turn will improve the quality of management’s decision. The systematic nature of such a fundamental review imposes a discipline on the organization which has produced in practice secondary advantages. the general problem of incremental budgeting that zero-base budgeting attempts to solve has been recognized from a much earlier period. Review and ranking of decision packages. Indeed. 2. ZBB involves three stages: 1. it dose not assume that last year’s allocation of resources is necessarily appropriate for the current year. the major next application of ZBB in government has been tracked back to GOV. All budgetary procedures involve an identification of organizational objectives. In the context of these objectives. Advantages of ZBB • ZBB unlike incremental traditional line item budget. Applications of ZBB The practical application of ZBB involves the use of the “Decision Package”. the major leap forward occurred with the development at Texas Instruments Inc.S Department of Agriculture in 1962.and public -sectors for decades. all the functions of an organization are re-evaluated annually from a zero base. Identification of decision units. This involved the implementation of a “Decision Package” approach to prepare the 1970 budget for the Staff & Research Divisions. Development of decision package. 3. has been used in the private. of a way to handle the mass of data. Another advantage that stems from this improved management information is that its production involves the participation of lower .level management in the . In the private sector.Historical development of ZBB ZBB or some modified version of it.

even in ZBB systems. when funds become tight. This make the ranking process difficult. . Established programs have political support and they will continue to receive their share of the budget regardless of any analysis produced. it forces managers to establish a preference for effectiveness. ZBB can eliminate a sense of “entitlement” to cost increases. limiting their ability to perform other important functions. the greater this involvement will become. But this might lead to a sub-optimal allocation of resources. each department is asked to make marginal reductions. As a result. or equity as they try to rank decision packages. Disadvantages of ZBB • • ZBB vastly overestimates man’s ability to calculate. Attempts by agencies to manipulate priority listings by ranking popular items lower than items that would have little chance of funding. • The use of cutoff point for packages is different in public agencies. • • • The implementation of a ZBB system requires a great deal of time on the part of agency staff. • • • If implemented well. This is because the basic information for modifying goals has already been generated. In practice the effects of different levels of effort on each alternative mutually exclusive decision package are not considered. and the smaller the decision units. More meaningful budget discussions during plan review sessions. rather than eliminate the lowest ranked programs. Improved discipline in developing budgets. due to the short budgetary cycle and the need for expediency. • Unexpected events that occur during the financial year can be more readily adjusted for. efficiency. • By incorporating performance measures in the formation of decision packages.budgetary process.

not just the budget paperwork. cultures and priorities. Providing information about public sector performance can satisfy the public’s need to know. . if so. There is no single model of performance budgeting. There is also the question of whether performance information should be used in deciding how to allocate resources and. there are no single agreed standard definitions of performance budgeting. Much of this information does find its way into budget documents. Thus. Performance budgeting Tight budgets and demanding citizens put governments under increasing pressure to show that they are providing good value for money.2. they need to find a way to integrate performance into the budget decision process. of the type of information it should include. Performance information has a long history in OECD countries: most of them have been working on it for at least five years. Even when countries have adopted similar models. performance budgeting can be combined with increased flexibility for managers in return for stronger accountability for the results. how. or of the stage of the budget process when it should be introduced. agencies and public service providers are doing the job required of them effectively and efficiently. The introduction of performance budgeting has been linked to broader efforts to improve expenditure control as well as public sector efficiency and performance. and could also be a useful tool for governments to evaluate their performance. they have taken diverse approaches to implementing them and have adapted them to their own national capacities. but the governments of OECD countries have taken a closer look at integrating it into the budget process in the past decade as part of efforts to improve decision making by moving the focus away from inputs (“how much money will I get?”) towards measurable results (“what can I achieve with this money?”). To complicate matters. Performance information is a fairly simple concept: providing information on whether programmes. and almost half of them for more than ten. If governments want to use performance information in budget setting. but simply including information on performance in budget documents is a long way from performance budgeting. so as to enable them to decide how to best deliver public services. Performance information is not a new concept.

and direct performance budgeting. resources are indirectly related to proposed future performance or to past performance. budgets are both planning tools and performance evaluation tools. Therefore. However. The static budget is the budget that is based on this projected level of output. Direct performance budgeting involves allocating resources based on results achieved. In other words. In performance-informed budgeting. Flexible budgeting A budget is a plan for the future. The static budget variance is the difference between any line-item in this original budget and the .The OECD has defined performance budgeting as budgeting that links the funds allocated to measurable results. performance-informed. it might be the number of units of each product sold. This form of performance budgeting is used only in specific sectors in a limited number of OECD countries. Hence. it is the number of patient days (the number of patient admissions multiplied by the average length of stay). For a hospital. or both. For a factory. budgets are planning tools. the comparison of the budget to actual results provides valuable information about performance. Performance information is used along with other information in the decision-making process. prior to the start of the period. For example. the static budget is the “original” budget. the number of students who graduate with a Master’s degree will determine the following year’s funding for the university running the programme. or results. Presentational performance budgeting simply means that performance information is presented in budget documents or other government documents. The performance information is not intended to play a role in decision making and does not do so. and is included as background information for accountability and dialogue with legislators and citizens on public policy issues. and they are usually prepared prior to the start of the period being budgeted. 3. but does not determine the amount of resources allocated and does not have a predefined weight in the decisions. Usually. For a retailer. The information can refer to targets. the single most important input in the budget is some measure of anticipated output. this measure of output is the number of units of each product produced. There are three broad types: presentational. The performance information is important in the budget decision-making process.

corresponding line-item from the statement of actual results. The following steps are used to prepare a flexible budget: 1. 4.. Determine the actual volume of output achieved (e. The flexible budget asks the question: “If I had known at the beginning of the period what my output volume (units produced or units sold) would be. Also determine the budgeted sales price per unit of output.000 units or any other production level. The flexible budget variance is the difference between any line-item in the flexible budget and the corresponding line-item from the statement of actual results. Flexible budgets are prepared at the end of the period. not to what the factory should have spent to make 9.g. 2. If the factory actually produced 10. 3. and the actual volume of output from step 3. the retailer or the hospital). when actual output is known. Determine the budgeted level of fixed costs. then management should compare actual factory costs for 10.000 units or 11.000 units. the same steps described above for creating the flexible budget can be used prior to the start of the period to anticipate costs and revenues for any projected level of output. the line-item of most interest is the “bottom line”: total cost of production for the factory and other cost centers. The flexible budget is a performance evaluation tool. net income for profit centers.000 units to what the factory should have spent to make 10. Often.g. units sold for a retailer. A flexible budget adjusts the static budget for the actual level of output. However. Build the flexible budget based on the budgeted cost information from steps 1 and 2.000 units. Determine the budgeted variable cost per unit of output. what would my budget have looked like?” The motivation for the flexible budget is to compare apples to apples. if the entity to which the budget applies generates revenue (e. It cannot be prepared before the end of the period. patient days for a hospital).. units produced for a factory. where the projected level of output is incorporated at step 3. If these steps are applied to various .

what will be the company’s cash. start-up fashion jeans manufacturer. the analysis is called pro forma analysis. The company has no variable marketing costs.anticipated levels of output. if next year’s sales are double this year’s sales. materials. . a small. For example. and labor requirements in order to meet production needs? Pro Forma Analysis at XYZ Ltd: Following are pro forma monthly income statements for XYZ Ltd. Pro forma analysis is useful for planning purposes. The pro forma analysis was prepared at the beginning of the month and considered three alternative sales levels.

000 50.000 150. .000 units $1.000 200.000 150.000 100.000 100.000 600.000 300.000 300.000 50.000 Budgeted unit $40 10.000 50.000 Pro Forma Analysis for amount perAlternative Output Levels Contribution margin $10 Fixed costs: Manufacturing Overhead Marketing costs Total fixed costs Operating income 100.000 $50.000 units $400.000 300.000 100.000 ($50. fixed costs are not expected to change as volume of output changes within the relevant range.000 50.000 300.XYZ LTD PRO FORMA ANALYSIS FOR THE UPCOMING MONTH Income Statement line-item Revenue Variable costs: Materials Labor Overhead Total 15 10 5 30 150.000 150. fixed costs remain the same at all three projected levels of output.000 units $800.200.000 100.000 150.000 Since by definition.000 $150.000 200.000 900.000 450.000 30.000) 100.000 20.

each line-item for variable costs.000 units is the most likely output volume.Revenue and variable costs vary with output in a linear fashion. .000 units. Hence. showing the static budget. company personnel prepare the following table. and contribution margin all increase 100%. and sets the static budget based on this sales and production level. actual results. and the static budget variance. when output increases 100% from 10. revenue. After the end of the month.000 units to 20. Static Budget Variance at XYZ Ltd: XYZ Ltd management decides that 10.

(4.000) (67.000 Actual Results (B) 16.000 84. and negative numbers are unfavorable (bad news).000 Static Budget Variance (A) – (B) $270.000.000 50.000) $85.000 $35.000) 105.XYZ LTD STATIC BUDGET VARIANCE FOR THE MONTH JUST ENDED Income Statement line-item Revenue Variable costs: Materials Labor Overhead Total Contribution margin Fixed costs: Manufacturing Overhead Marketing costs Total fixed costs Operating income 100.000 (80.000 15 10 5 30 $10 150.000 100.000 300.000 230.000) 1.000 167.000 154.000 481. and large unfavorable variances for variable costs.000) (34.000) 89.000 ($50.000 (5. The static budget variance shows a large favorable variance for revenue.000) (181.000 units $670.000 50. These large variances are due primarily to the fact .000 150. positive numbers are favorable variances (good news).000 100.000 189.000 In the variance column.000 49.000 units $400.000 Budgeted amount unit $40 Static per Budget (A) 10.

The revenue variance might also be due to an average unit sales price that differed from budget. XYZ LTD FLEXIBLE BUDGET VARIANCE .g. XYZ Ltd personnel prepare the following flexible budget..000 units. There are also small variances for fixed costs. or input quantities that differed from the per-unit budgeted amounts (e.that the static budget was built on an output level of 10. The Flexible Budget Variance at XYZ Ltd: In order to better understand the causes of the large revenue and variable cost variances in the static budget variance column.000 units. and depreciation expense can change if unexpected capital acquisitions or dispositions occur. The variable cost variances might also be due to input prices that differed from budget (e. For example. yards of fabric per pair of pants). many factors can cause actual fixed costs to differ from budgeted fixed costs that are unrelated to output volume..g. These costs should not vary with the level of output (at least within the relevant range). However. while the company actually made and sold 16. the price of fabric). property tax rates and the fixed salaries of front office personnel can change.

000 230.000) $25.000 480.000 84.000.000 160.000 (5.000 Budgeted amount unit $40 Flexible per Budget (A) 16.000) (1. or a combination of these two factors.000 481.000 $10. This favorable variance could be due to lower fabric prices. (4.000 variance must be due entirely to an average sales price that was higher than planned (almost $42 per pair compared to the original budget of $40 per pair).000 167.000 160.FOR THE MONTH JUST ENDED Income Statement line-item Revenue Variable costs: Materials Labor Overhead Total Contribution margin Fixed costs: Manufacturing Overhead Marketing costs Total fixed costs Operating income 100.000 15 10 5 30 $10 240. XYZ Ltd management sees that even after adjusting for sales volume.000) 1.000) (4. Materials costs were lower than would have been expected for a sales volume of 16.000 $35.000 Actual Results (B) 16.000 80. positive variances are favorable (good news).000 154.000 (7. From this table.000 Once again. revenue was higher than would have been expected. or to more efficient utilization of fabric (less waste than expected). The favorable $30.000 units.000 units $640.000 10.000 105.000) 29. and negative variances are unfavorable (bad news).000 150.000 50.000 49.000 189. Labor .000 Flexible Budget Variance (A) – (B) $30.000 units $670.

or both. The fixed cost variances are identical in this table to the previous table.and overhead were higher than expected. the components of variable overhead were either more expensive than budgeted. This unfavorable flexible budget variance implies that either wage rates were higher than planned. For example. the flexible budget and flexible budget variance provide no additional information about fixed costs beyond what can be learned from the static budget variance.000 units. Similarly. or more electricity was used than planned per unit of output. Learning Objectives . In other words. even after adjusting for the sales volume of 16. or were used more intensively than budgeted. or labor was not as efficient as planned. electric rates might have been higher than planned.

budgeting and forecasting An introduction to the types of budgets Relation of Budgetary control and responsibility centres .• • • • • An indication and explanation of the importance of budgetary control as a control technique An overview of the advantages and disadvantages of budgeting Difference between strategic planning.

A Report on BUDGETARY CONTROL Submitted to Mr. Ajay Shah Submitted by: Abhilash Guddi Gowri T R Pranavi N P Saurabh Priyadarshi Vignesh Prabhu (SECTION A) .

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