BUDGETING AND THE

BUDGETARY PROCESS
Satty Nkhata
satty.nkhata@unilus.ac.zm
 OVERVIEW
▪ The place of budgeting in the planning and
control framework
▪ Different purposes of budgeting;
▪ Stages in the budget process;
▪ Functional and master budgets;
▪ Activity-based budgeting;
▪ Zero-based budgeting (ZBB);
▪ Criticisms relating to traditional budgeting.
 The Place of Budgeting in the
Planning and Control Framework
 Budgeting and Long-Term Planning

▪ Budgeting is an integrated part of the long-

term planning process.
▪ Budgeting is concerned with the
implementation of the long-term plan for the
year ahead.
▪ Budgets are a clear indication of what is
expected to be achieved during the budget
period, whereas long-term plans represent
the broad directions that top management
intend to follow.
▪ The budget is developed within the context of
ongoing business and is ruled by previous decisions
that have been taken within the long-term planning
process.
▪ When the activities are initially approved for inclusion
in the long-term plan, they are based on uncertain
estimates that are projected for several years.
▪ These proposals must be reviewed and revised in the
light of more recent information.
▪ This review and revision process frequently takes place
as part of the annual budgeting process, and it may
result in important decisions being taken on possible
activity adjustments within the current budget period.
 FUNCTIONS OF BUDGETS
▪ Budgets serve a number of useful purposes such as:
• planning annual operations;
• coordinating the activities of the various parts
of the organization and ensuring that the parts
are in harmony with each other;
• communicating plans to the various
responsibility centre managers;
• motivating managers to strive to achieve the
organizational goals;
• controlling activities;
• evaluating the performance of managers.
 STAGES IN THE BUDGETING PROCESS
• Communicating details of budget policy and
guidelines to those people responsible for
the preparation of budgets;
• Determining the factor that restricts
output(limiting factor)
• Preparation of the sales budget;
• Initial preparation of various budgets;
• Negotiation of budgets with superiors;
• Coordination and review of budgets;
• Final acceptance of budgets;
• Ongoing review of budgets.
 TYPES OF BUDGETS
• Sales budget;
• Production budget;
• Direct materials usage budget;
• Direct materials purchase budget;
• Direct labour budget;
• Production overhead budget;
• Selling and administration budget;
• Cash budget.