INTRODUCTION

‘PLANNING’ IS THE PRIMARY AND ‘CONTROL’IS THE LAST FUNCTION OF MANAGEMENT.‘BUGETING’AND ‘BUDGETORY CONTROL’ OCCUPIES AN IMPORTANT PLACE AMONG THE VARIOUS TECHNIQUES WHICH ARE USED IN PERFORMING THESE FUNCTIONS.

MEANING OF BUDGET
A BUDGET IS THE MONETARY OR QUANTITATIVE PRESENTATION OF BUSINESS PLANS AND POLICIES TO BE PERSUED IN THE FUTURE PERIOD OF TIME.  ACC. TO I.C.M.A;LONDON “A BUDGET IS A FINANCIAL STATEMENT PREPARED PRIOR TO A PREDETERMINED PERIOD OF TIME OF THE POLICY TO BE PERSUED DURING THAT PERIOD FOR THE PURPOSE OF ATTAINING GIVEN OBJECTIVES.”

ACC. TO BROWN AND HOWARD

“ A BUDGET IS A PRE DETERMINED STATEMENT OF MANAGEMENT POLICY DURING A GIVEN PERIOD WHICH PROVIDES A STANDARD FOR COMPARISON WITH THE RESULTS ACTUALLY RECEIVED.”

MEANING OF BUDGETING
IT IS A PART OF MANAGEMENT PROCESS WHICH INCLUDES PREPARATION OF BUDGET,BUDGET CONTROL,BUDGET COORDINATION AND ALL THOSE ACTIVITIES THAT ARE RELATED TO BUDGET..  ACC. TO SHILINGLAW: “BUDGETING IS THE PREPERATION OF COMPREHENSIVE OPERATING AND FINANCIAL PLANS FOR SPECIFIC INTERVALS OF TIME.”

ACC. TO WILLIAM J. BATTY

“BUDGETING IS A KIND OF FUTURE TENSE ACCOUNTING IN WHICH THE PROBLEM OF FUTURE ARE MET ON PAPER BEFORE THE TRANSACTION ACTUALLY OCCUR”

MEANING OF BUDGETORY CONTROL

ACC. TO J. BATTY “ BUDGETORY CONTROL IS A SYSTEM WHICH USES BUDGET AS A MEANS OF PLANNING AND CONTROLLING ALL ASPECTS OF PRODUCING AND/OR SELLING COMMODITIES OR SERVICES.”

ACC. TO BROWN $ HOWARD

“BUDGETORY CONTROL IS A SYSTEM OF CONTROLLING COSTS WHICH INCLUDES PREPERATION OF BUDGETS,COORDINATING THE DEPARTMENTS AND ESTABLISHING RESPONSIBILITIES, COMPARING ACTUAL PERFORMANCE WITH THE BUDGETED AND ACTING UPON RESULTS TO ACHIEVE MAXIMUM PROFITABILITY.”

DIFF.IN BUDGET ,BUDGETING $BUDGETORY CONTROL
 

BUDGET $ BUDGETING ARE NARROW CONCEPT WHILE BUDGETORY CONTROL IS A WIDER CONCEPT IF THERE IS A BUDGET $ BUDGETING, IT IS NOT NECESSARY THAT THERE SHOULD BE BUDGETORY CONTROL ALSO.BUT IF THERE IS BUDGETORY CONTROL THERE MUST BE BUDGET $ BUDGETING. BUDGETS ARE BUSINESS ESTIMATES FOR FUTURE PERIOD,BUDGETING IS THE PROCESS OF PREPARING THESE ESTIMATES WHILE BUDGETORY CONTROL IS A SYSTEM OF ACHIEVING PERFORMANCE ON THE BASIS OF BUDGETS.

BUDGET AND

BUDGETING ARE PARTS OF PLANNING WHEREAS BUDGETORY CONTROL IS LINKED WITH COORDINATION AND CONTROL. BUDGET IS ADMINISTRATION OF FINANCIAL PLAN.

OBJECTIVES OF BUDGETORY CONTROL
1. 2. 3.

4. 5.

TO ENSURE PLANNING FOR FUTURE TO CO-ORDINATE THE ACTIVITIES OF DIFFERENT DEPARTMENT TO OPERATE VARIOUS COST CENTERS AND DEPARTMENTS WITH EFFICIENEY AND ECONOMY. ELIMINATION OF WASTES AND INCREASE IN PROFITABILITY. TO ANTICIPATE CAPITAL EXPENDITURE FOR FUTURE.

6. TO CENTRALISE THE CONTROL SYSTEM. . 7.CORRECTION OF DEVIATION FROM ESTABLISHED STANDARDS. 8.FIXATION OF RESPONSIBILITY OF VARIOUS INDIVIDUALS IN THE ORGANISATION. 9. TO MAKE COST ACCOUNTING MORE SYSTEMATIC RELIABLE. 10.TO DETERMINE VARIOUS SHORT TERM OR LONG TERM FINANCIAL AND PHYSICAL TARGET.

ADVANTAGES OF BUDGETORY CONTROL
         

MAXIMISATION OF PROFIT. CO-ORDINATION. SPECIFIC AIM. TOOLS FOR MEASURING PERFORMANCE. OPTIMUM UTILISATION OF RESOURCES(ECONOMY) DETERMINING WEAKNESS. CORRECTIVE ACTION. CONSCIOUSNESS. REDUCE COSTS. INTRODUCTION OF INCENTIVE SCHEME.

DISADVANTAGE OF BUDGETORY CONTROL
      

UNCERTAIN FUTURE. REVISION REQUIRED. DISCOURAGE EFFICIENT PERSONS. PROBLEM OF CO-ORDINATION. CONFLICT AMONG DIFFERENT DEPARTMENTS. DEPEND UPON SUPPORT OF TOP MANAGEMENT. IT REQUIRES TOO MUCH TIME AND COST.

INSTALLATION OF BUDGETORY CONTROL.
      

CREATION OF BUDGET CENTERS. ARRANGEMENT OF ADEQUATE ACCOUNTING RECORDS. GENERAL INSTRUCTION ABOUT BUDGET TECHNIQUES. PREPERATION OF ORGANISATIONAL CHARTS. ESTABLISHMENT OF BUDGET COMMITTEE. PREPERATION OF BUDGET MANUAL DETERMINATION OF BUDGET PERIOD

•DETERMINATION OF KEY FACTOR •DETERMINATION OF LEVEL OF ACTIVITY. •BUDGET REPORT.

CREATION OF BUDGET CENTERS
 

THE FIRST STEP IN BUDGETARY CONTROL IS THE CREATION OF BUDGET CENTERS. BUDGET CENTER REFERS TO THOSE SECTIONS OR DEPARTMENTS OF THE CONCERN WHICH CAN BE DEFINED SEPERATELY FROM THE VIEW OF BUDGETARY CONTROL. IT IS NECESSARY FOR COST CONTROLPURPOSES.THE APPRAISAL OF PERFORMANCE OF DIFFERENT PARTS BECOME EASY WHEN DIFFERENT CENTERS ARE ESTABLISH.

ARRANGEMENT OF ADEQUATE ACCOUNTING RECORDS

THE ACCOUNTING SYSTEM AND RECORDS SHOULD BE DESIGNED IN SUCH A MANNER THAT THE INFORMATION REQUIRED FOR THE PREPERATION OF BUDGET AND EVALUATION OF PERFORMANCE MAY BE AVAILABLE EASILY AND REGULARLY.

GENERAL INSTRUCTION ABOUT BUDGET TECHNIQUES

ALL PERSON IN THE ORGANISATION, WHO ARE LINKED WITH THE COLLECTION OF INFORMATION FOR BUDGET AND ITS EXECUTION SHOULD BE GIVEN NECESSARY EDUCATION AND INSTRUCTION ABOUT BUDGET TECHNIQUES.

PREPERATION OF ORGANISATIONAL CHART

AN ORGANISATIONAL CHART SHOULD BE PREPARED WHICH DEFINE THE FUNCTIONAL RESPONSIBILITIES OF EACH MEMBER OF MANAGEMENT TEAM. THIS CHART HELPS EACH OFFICIALS TO KNOW HIS RESPONSIBILITY AND POSITION IN THE ORGANISATIONAL HIERARCHY.

BUDGETORY CONTROL SYSTEM
MANAGING DIRECTOR BUDGET COMMITTEE BUDGET DIRECTOR OR CONTROLLER

PRODUCTION MANAGER

SALES MANAGER S

FINANCE MANAGER

ACCOUNTS MANAGER

R&D MANAGER

BUDGET & PLANT UTILISATION BUDGET PLANTBUDGET]

[PRODUCTION PRODUCTION

A [] S SALES & A ADVERTISEMENT COST BUDGET L E

RECEIPT & PAYMENY BUDGET

COST BUDGET

R&D BUDGET

ESTABLISHMENT OF BUDGET COMMITTEE

IN SMALL ENTERPRISE BUDGET MAY BE PERFORMED BY ONE EXECUTIVE IN CONSULTATION WITH VARIOUS OFFICIALS.HOWEVER,IN LARGE ORGANISATION A BUDGET COMMITTEE WHICH REMAINS RESPONSIBLE FOR THE WHOLE SYSTEMOF BUDGET PREPERATION AND BUDGET CONTROL.

PREPERATION OF BUDGET MANUAL
 
   

IT IS A DOCUMENT WHICH SETS DOWN THE RESPONSIBILITIES OF THE PERSON ENGAGED IN FORMULATION OF BUDGETS. DETAILS INCLUDED IN MANUAL BUDGET ARE
OBJECTIVES &POLICIES OF BUDGETARY PLAN, DUTIES AND RESPONSIBILITIES OF VARIOUS OFFICIALS THE LENGTH OF VARIOUS BUDGET PERIOD. DATES FOR SUBMITTING BUDGET ESTIMATES & ACHIEVEMENTS.

DETERMINATION OF BUDGET PERIOD

THE BUDGET PERIOD IS ALSO DEFINED IN BUDGETARY CONTROL,i.e, THE LENGTHOF PERIOD FOR WHICH THE BUDGET IS TO BE DRAWN. NO STANDARD TIME IS FIXED FOR ALL TYPESOF BUDGETS BUT IT DEPENDS UPON OBJECTIVES OF BUDGET,NATURE OF BUSINESS,MARKET CONDITION ETC…

DETERMINATION OF KEY FACTOR

‘KEY FACTOR’ IS KNOWN AS LIMITING FACTOR BECAUSE IT EXPRESS THE LIMITATION OR SHORTAGE OF A PARTICULAR FACTOR SUCH AS,SHORTAGE OF ORDER,NON – AVAILABILITY OF MATERIALS,SHORTAGE OF LABOUR ETC…IT SHOULD BE NOTED THAT ANY KEY FACTOR SHOULD NOT BE A PERMANENT KEY FACTOR.

DETERMINATION OF LEVEL OF ACTIVITY

IN PREPARING BUDGET, LEVEL OF ACTIVITY IS ALSO DETERMINED,i.e.,THE LEVEL OF OUTPUT OR SALES THE COMPANY CAN REASONABLY EXPECT TO ACHIEVE DURING BUDGET PERIOD.THIS LEVEL OF ACTIVITY IS ESSENTIAL IN PRODUCTION PLANNING BECAUSE IT DECIDES MATERIAL AND LABOUR REQUIREMENT..

BUDGET REPORT

THE PROCESS OF BUDGETORY CONTROL COMPLETES WITH THE SUBMISSION OF BUDGET REPORT.IT PRESENTS ACTUAL RESULT ALONGWITH COMPARISON WITH BUDGET ESTIMATES..AND THUS DEVIATIONS ARE MADE IF NECESSARY.

The process ends

TYPES OF BUDGETS.
I. 2.

CLASSIFICATION ACC. TO TIME LONG TERM BUDGETS: THEY ARE RELATED WITH THE LONG TERM PLANNING OF BUSINESS.THE P[ERIOD OF SUCH BUDGET VARIES BETWEEN 5 TO 10 YRS.THEY ARE PREPARED IN TERMS OF PHYSICAL QUANTITIES.FOR EX: R$D BUDGET AND CAPITAL EXPENDITURE BUDGET.

2. SHORT-TERM BUDGET: THESE BUDGETS ARE PREPARED GENERALLY FOR A PERIOD OF 1 TO 5 YRS. THESE ARE ALWAYS PREPARED IN MONETARY UNITS AND ARE MORE PRECISE THAN LONG-TERM BUDGETS. 3. CURRENT BUDGET: THESE BUDGETS ARE PREPARED FOR A PERIOD OF ONE MONTH TO TWELVE MONTH..THE MAIN OBJECTIVE OF THIS BUDGET IS TO MAKE ADJUSTMENTS IN SHORT-TERMBUDGETS ACCORDING TO CURRENT CONDITIONS.

II.
1.

ON THE BASIS OF FLEXIBILITY:
FIXED BUDGET: IT IS ALSO KNOWN AS STATIC BUDGET.IT IS PREPARED FOR SINGLE LEVEL OF ACTIVITY AND SINGLE SET OF BUSINESS CONDITION.ACC.TO I.C.M.A,LONDON,”FIXED BUDGET IS A BUDGET WHICH IS DESIGNED TO REMAIN UNCHANGED IRRESPECTIVE OF THE LEVEL OF ACTIVITY ACTUALLY ATTAINED.”

2.

FLEXIBLE BUDGET

FLEXIBLE BUDGET IS THAT BUDGET WHICH PRESENT COST , REVENUES AND PROFITS AT VARIOUS LEVELS OF BUSINESS ACTIVITY , I.E., VARIOUS VOLUMES OF OUTPUT AND SALES . ACCORDING TO I.C.M.A , LONDON , “A FLEXIBLE BUDGET MAY BE DEFINED AS A BUDGET WHICH IS DESIGNED TO CHARGE IN ACCORDANCE WITH LEVEL OF ACTIVITY ATTAINED.”

Difference between flexible and fixed budget.
Basis Fixed Budget Flexible Budget

Rigidity

A flexible budget A fixed budget remains the same is recast to suit Irrespective of the the change changed situation. circumstances. It assumes that conditions will remain constant This budget is changed if level of activity varies.

Conditions

Basis

Fixed budget

Flexible budget The cost are studied as per their nature like fixed variable. It helps in making accurate forecasts. Cost can easily be ascertained

Cost In this cost are not classification classified acc. to their nature Forecasting Forecasting of accurate result is difficult Cost cannot be Cost ascertainment ascertained due to change circumstances

III. ON THE BASIS OF FUNCTION
1.

MASTER BUDGET IS A CONSOLIDATION SUMMARY OF THE VARIOUS FUNCTIONAL BUDGETS . ACCORDING TO SOME EXPERTS , BUDGETED PROFIT AND LOSS ACCOUNT AND BUDGETED BALANCE SHEET MAY BE TREATED AS MASTER BUDEGETD . IN BRIEF , MASTER BUDGET DEPICTS THE PICTURE OF TOTAL PLANS DURING THE BUDGET PERIOD AND IT COVERS INFORMATION RELATING TO PRODUCTION , COST , SALES , PROFIT , ETC .

2.FUNCTIONAL BUDGETS:
THEY ARE ALSO KNOWN AS ‘DEPARTMENTAL BUDGETS’ OR ‘SUBSIDIARY BUDGETS’. ALL THOSE BUDGETS ARE PLACED IN THIS CATEGORY WHICH ARE PREPARED EITHER ON THE BASIS OF FUNCTIONS OR DEPARTMENTS IN A BUSINESS CONCERN.THE GENERAL

FUNCTIONAL BUDGETS

OPERATING BUDGETS

FINANCIALBUDGETS

SALES BUDGET PRODUCTION BUDGET COST BUDGET

CASH BUDGET CAPITAL EXPENDITURE BUDGET

SALES BUDGET

SALES BUDGET IS A FORECAST OF SALES DURING BUDGET PERIOD.IT PRESENTS THE SALES PROJECTION IN TERMS OF QUANTITY, VALUE, PERIOD,SALES AREA ,PRODUCT,ETC.IT SHOULD BE NOTED THAT SALES BUDGET IS A STARTING POINT OF BUDGETARY SYSTEM AND ALL OTHER BUDGETS IN A BUSINESS CONCERN ARE PREPARED ON THE BASIS OF SALES BUDGET.

PRODUCTION BUDGET

IT IS A FORECAST OF TOTAL OUTPUT OF THE WHOLE ORGANISATION BROKEN DOWN INTO ESTIMATES OF OUTPUT OF VARIOUS PRODUCTS TO BE PRODUCED DURING BUDGET PERIOD.ITS IS BIFURGATED IN TWO PARTS ONE SHOWS ESTIMATE IN VOLUME OR QUANTITY AND OTHER SHOWING PRODUCTION COSTS.

COST BUDGET

THIS BUDGET IS PREPARED AFTER DETERMINATION OF THE VOLUME OF OUTPUT IN PRODUCTION BUDGET AND IT PRESENTS AN ESTIMATE OF COSTS OF OUTPUT PLANNED FOR A BUDGET PERIOD.

CASH BUDGET

IT IS A STATEMENT WHICH GIVES AN ESTIMATE OF THE ANTICIPATED RECEIPT AND PAYMENTS OF CASH DURING BUDGET PERIOD .IT ALSO GIVES INDICATION FOR THE ARRANGEMENTS OF SHORTAGE AND UTILISATION OF SURPLUSES.

CAPITAL EXPENDITURE BUDGET

THIS BUDGET GIVES AN ESTIMATE OF THE AMOUNT OF CAPITAL THAT MAY BE REQUIRED FOR PURCHASING FIXED ASSETS NEEDED FOR FULFILLING PRODUCTION REQUIREMENTS AS SPECIFIED IN THE PRODUCTION BUDGET….

PERFORMANCE BUDGETING
 

It has been defined as a “budget based on functions, activities and projects.” Acc. To The National Institute Of Bank Manager,it is a process of analyzing,identification,simplification and crystallizing specific performance objectives of a job to be achieved over a period in the framework of the organizational objectives,the purpose and objectives of the job. It requires preparation of performance report and then compare budgets and actual data and then taking variances.

Process of Performance Budgeting
 

Development of performance criteria for various programmes; Assessment of performance of each programme and by each responsibility unit; Comparison of the actual performance with the budge; Undertaking periodic review of the programme with the view to make modification as required

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