MEANING OF BUDGET AND

CONTROL
A budget is a detailed plan of operations for some
specific period. It is an estimate prepared in advance of
the period to which it applies.
Control means “some sort of systematic effort to
compare current performance to a predetermined plan
or objective , presumbly in order to take any remedial
action required”
MEANING OF BUDGETORY CONTROL
According to J.A.Scott, “it is the system of
management control and accounting in which all
operations are forecasted and so far as possible
planned ahead, and the actual results compared with
the forecasted and planned ones.”
CLASSIFICATION OF BUDGET
ACCORDING TO FLEXIBILITY
FIXED BUDGET
FLEXIBLE BUDGET
FIXED BUDGET
A budget prepared on the basis of a standard or a fixed
level of activity is called a fixed budget.
Such budget is designed to remain unchanged
irrespective of the level of activity attained.
It shows only one volume output and related costs.
This type of budget is best suited for fixed expenses,
which have no relation to the volume of output.
FLEXIBLE BUDGET
A budget is designed in a manner so as to give the
budgeted cost of any level of activity is termed as
flexible budget.
The preparation of the budget necessitates the
classification of expenses into fixed, variable and semi-
variable.
It is more elastic, useful and practical.
The object is to assess that any individual cost should
have been in the view of the level of activity actually
attained.
Illustration1:-
A company produces 1,000units at 100% capacity, and
the costs at this level are as follows:-
Fixed Rs5/- per unit
variable Rs3/- per unit
semi-variable Rs4/- per unit(60% fixed)
In case the budgeted levels of activity are 80%, 90% and
100%, the flexible budget figures for the different levels
of activity will be as follows:
Soln:- Flexible budget
Levels of activity 80% 90% 100%
Units 800 900 1000
Rs Rs Rs
Fixed costs 5000 5000 5000
Variable costs 2400 2700 3000
Semi-variable costs:
fixed 2400 2400 2400
variable 1280 1440 1600
Total costs 11080 11540 12000
Illustration 2:-
The budgeted expenses for the production of 10,000 units in a factory
as follows: per unit in Rs.
Materials 70
Labor 25
Variable overheads 20
Fixed overheads (1,00,000) 10
Direct expenses 5
Selling expenses (15% fixed) 13
Distribution expenses (20% fixed) 7
Administrative expenses (50,000) 5
155
Prepare a budget for 8,000 units.
Illustration 3:-
draw a flexible budget for overhead expenses on the basis of the
following data and determine the overhead rates @ 70%, 80% and
90% plant capacity.
Variable overheads @80% capacity(rs)
Indirect labor 24,000
Stores including spares 8,000
Semi-variable overheads:
Power (60% fixed) 40,000
Repairs and maintenance
(40% variable) 4,000
Fixed overheads:
Depreciation 22,000
Insurance 6,000
Salaries 20,000
Estimated direct labor hours 2,48,000 hours (common to all levels)