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By, sant k. gupta

m anning· is the primary and
mntr· is the ast functin f
management. mBudgeting· and
budgetary cntr· ccupies an
imprtant pace amng the varius
techniques which are used in
perfrming these functins. In fact
mBudget·, mBudgeting· and
mBudgetary ntr· a the three
cncepts are inked with ne
generic term and a these three
refect different aspects f the
same system.
A budget is the monetary or quantitative presentation of business plans and policies to
be pursued in the future period of time. Some of its definitions are as follows:

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 a given
objective.µ  °  
A budget is a pre-determined statement of management policy during a given period
which provides a standard for comparison with the results actually achieved.µ
 udget is an estimate of future needs arranged according to an orderly basis covering
some or all the activities of an enterprise for a definite period of time.µ

A budget is a forecast, in detail, of result of an officially recognized programme of
operations based on the highest reasonable operating efficiency.µ   !
 udgets are formal programmes of future operations and expected results. udgets
result from forward thinking and planning.µ £  "!

„ It is prepared for a definite future period.

„ It is a special form of statement expressed in quantitative
terms which may be in the form of monetary value or
physical units.
„ It is prepared with a view to attain a definite objective or
„ It expresses the plans and policies of the management to be
pursued in future.
„ It provides a base for measuring the success of actual
°# $
udgeting is a part of management process which includes
preparation of budget, budget control, budget co-ordination and
all those activities that are related with budget. Some of its
definitions are as follows:

 udgeting is a kind of future tense accounting in which the

problems of future are met on paper before the transactions
actually occur.µ £"!!%& 
 udgeting is the preparation of comprehensive operating and
financial plans for specific intervals of time.µ

Thus, it is clear that budgeting is a wider process which includes

all preparations related to budget, decisions related to various
problems arising in budget, implementation of budget and control
on the basis of budget.

udgetary control is an important technique of control

on business activities by management, in which
business activities are operated on the basis of pre-
prepared budget and thereafter actual results are
evaluated in the light of budget estimates. Some
important definitions of budgetary control are as
The term ¶ udgetary Control· is applied to a system of management and
accounting control by which all operations and output are forecasted as
far as possible and the actual results, when known, are compared with
the budget estimates.µ £"" 

 udgetary control is a system of controlling costs which includes the

preparation of budgets, co-coordinating the departments and establishing
responsibilities, comparing actual performance with the budgeted and
acting upon results to achieve maximum profitability.µ £ 

 udgetary control involves the use of budgets and budgetary report

throughout the period to co-ordinate, evaluated and control day-to-day
operations in accordance with the goals specified by budgets.µ £
! "!)*(

 udgetary control is a system which uses budgets as a means of

planning and controlling all aspects of producing and/or selling
commodities or services

 udgetary control may be described as a process of finding out what is

being done and comparing actual results with the corresponding budget-
data in order to approve accomplishment or  
        

  

.µ £

In brief, budgetary control is a tool of management
control and accounting which directs and co-ordinates
the working operation on the basis of budgets. If there
are variances in actual results, then either they are
corrected or budget is modified so that the objective of
maximum efficiency as per the policy of management
may be achieved.



Though the concepts of ¶ udget·, ¶ udgeting· and ¶ udgetary control·

are closely related to each other, but technically they differ in
following respects:

udget and budgeting are narrower concepts while budgetary control

is a wider concept. If there is budget or budgeting, it is not necessary
that there should be budgetary control also. ut if there is budgetary
control, then budget and budgeting are must.

udgets are business estimates for future period, budgeting is the

process of preparing these estimates while budgetary control is a
system of achieving performance on the basis of budgets.

udget and budgeting are the parts of planning whereas budgetary

control is linked with co-ordination and control. In other words,
budget is a financial plan while budgetary control results from the
administration of financial plan.
 udgets are the individual objectives of a department,
whereas budgeting may be said to be the act of
building budgets. udgetary control embraces all this
and in addition includes the science of planning the
budgets themselves and the utilization of such budgets
to affect an overall management tool for the business
planning and control.µ
& ,'  

The main objective of budgeting is to assist the

management in its main functions of planning, co-
ordination and control. In fact, budget is an important
instrument of communication through which
management communicates its policies and targets to
the persons doing work. The objectives of budgeting
may be classified into three groups:
icy reating bjectives:

To express the policies and objectives of the firm in

quantitative terms.
To prepare base for appraisal of work-performance.

To co-ordinate administrative, managerial and

organizational units of the firm.
To develop a system of regular appraisal of policies
and objectives of the firm.
dministrative bjectives:

To determine responsibilities of various departments

and sub-departments of the firm.
To establish balance between available funds and
estimated expenditures.
To develop a system of internal control so as to ensure
efficiency and economy.
To establish the system of decentralization of
?ther bjectives:

To clarify business planning.

To forecast in respect of sales, cost of production, cash
flow, etc.
To make arrangement for measurement of efficiency
and capacity of various departments.
To make effective control in stock, cost of production
and cash of the firm.
-.*/)# $ !
udgetary control is essential for policy planning and control. It also acts as
an instrument of co-ordination. The main objectives of budgetary control are
as follows:

To assist in policy formulation on the basis of proper

and reliable data.
To ensure planning for future by setting up various
To determine short-term and long-term financial and
physical targets.
To operate various cost centres and departments with
efficiency and economy.
To classify expenses according to their nature such as
direct and indirect expenses; fixed, variable and semi-
variable expenses, etc.
To help administration as under this system,
executives perform their functions according to pre-
determined budgets.
To anticipate capital requirements and to make
necessary arrangement for it.
To make cost accounting more reliable and systematic.

To promote research in order to bring down cost, to

increase efficiency and to achieve the targets of sales.
To develop co-ordination and co-operation among
employees and executives.
To eliminate wastes and increase in profitability.

To correct the variations from the established

To fix the responsibility of various individuals in the
0# $) !))#*# $)
?n the basis f erid:

On the basis of period or time, budgets may be classified into following three

V long-term budgets are related with the long-term

planning of the business. The period of such budgets varies between five to
ten years. These budgets are generally prepared in terms of physical
quantities. Capital expenditure budget and R& D budget are some of the
examples of long-term budgets.

þ  short-term budget is that budget which is prepared

generally for a period of one to five years. These are always prepared in
monetary units and are more precise than long-term budgets.

p   these budgets are in fact a kind of short-term budgets and
their period extends from one month to twelve months. The main objective of
these budgets is to make adjustments in short-term budgets according to
current conditions.
?n the basis f Fexibiity:

On the basis of flexibility, budgets may be fixed or flexible

as explained below:

ïfixed budget is also known as ¶Static udget·.

It is prepared for single level of activity and single set of
business conditions. According 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.µ

ï  flexible budget is that budget which

presents costs, revenues and profits at various levels of
business activity, i.e., various volumes of output and sales.
According to pV  A flexible budget may be
defined as a budget which is designed to change in
accordance with the level of activity attained.µ
?  B I ?F FU I? :
The budgets on the basis of functions may be classified into
following two groups:

°) $the master budget is a consolidated summary of

the various functional budgets. According to some experts,
  V 

   
þ 
   . 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.

$*! $) there are also known as ¶Departmental

udgets· or ¶Subsidiary udgets·. All those budgets are placed in
these categories which are prepared either on the basis of
functions or departments in a business concern. The general
classification of functional budgets may be exhibited as follows:
'!)-$sales budget is a forecast of sales during
budget period. It presents the sales projections 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 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. Generally, this budget is prepared in
two parts³one showing the estimates in volume or
quantities and the other showing production cost. The
details of expected production may be product-wise,
department-wise or period-wise or this entire basis may be
)-$this budget prepared after determination of the volume of output in production budget
and it presents an estimate of cost of output planned for a budget period. This budget may be
classified into many sub-budgets, ., Cost of Production udget, Administration includes four
important subsidiary budgets also and these budgets are:

-a) Mirect Materias Budget: this budget deals with the requirement and procurement of direct
materials: thus, it includes the following two important aspects:
„ Preparation of estimates of different types of raw materials needed for various products.
„ Scheduling of procuring necessary raw materials in required quantities at required time.

The price and quality of raw materials are also considered in materials budget.

-b) Mirect Labur Budget: this budget presents an estimate of the requirements of direct labour
essential to meet the production targets fixed in production budget. This budget may be classified
into labour requirement budget and labour recruitment budget. The labour requirement is estimated
on the basis of different grades and different departments and on that basis labour cost is also

-c) Manufacturing verhead Budget: this budget gives an estimate of works or manufacturing
overhead expenses to be incurred in a budget period to achieve the production targets. The budget
may be classified into fixed cost, variable cost and semi-variable cost.

-d) ant Utiizatin Budget: this budget lays down the level of plant capacity to carry out the
production as per production budget. On this basis unutilized capacities in various departments and
their alternative uses can also be considered.
)( $cash budget is a statement which gives
an estimate of the anticipated receipts and payments
of cash during budget period. It also gives indication
for the arrangement of shortages and utilization of

0!10$ $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. Separate budgets may be prepared for
different items of fixed assets, such as plant and
equipment budget, building budget, etc.
Thank you