Budgeting

• According to CIMA
– A Financial or Quantitative statement prepared
prior to a defined period of time, of the policy
to be pursued during the period for the
purpose of achieving the given objective.
– It is forward looking
– Prepared in quantitative or units or both
– For a particular time frame
 Budgetary control
• Control in which actual results are
compared with the budgeted results
• Steps in Budgetary control
– Developing Budgets
– Recording the actual
– Comparison between budgeted and actual
– Corrective action
Objectives of Budgetary Control
• To operate the business efficiently
• Elimination of waste and increase in
profitability
• Anticipate the capital expenditure for
future
• Centralize the control system
• Correction of Deviations from the
standards
• Fixation of Responsibility
 Advantages of Budgetary
Control
• Maximization of Profits
• Co-ordination
• Measuring the performance
• Corrective Action
• Reward System
• Goal Congruence
Limitations of the Budgetary Control

• Uncertain Future
• Need to be revised every time
• People try to perform only up-to budget
• Conflict among different departments
• Depends on the support of top
management
 Types of Budget
• Classification according to Time
– Long Term Budget
• Budget for long term planning of business. Usually for more
than 5 years.
• It is done by the top level management.
– Short Term Budget
• For a shorter duration. Mostly on the operation fronts and
achievement of long term objectives
– Current Budget
• Generally for a month or a week. Done at lower level,
mainly on operations
• Classification Based on Functions
– Operating Budget
• Budget of different activities or operations. E.g. Sales
Budget, Material Budget, Purchase Budget, Labor
budget etc.
• Operating Budget Consists of
– Programme Budget
» Shows revenues and costs of each line of product or
project
– Responsibility Budget
» Displays the persons responsible for achieving the targets.
Usually prepared for responsibility centres.
• Financial Budget
– Concerned with cash inflows and
disbursements.
– E.g. Cash Budget, Working Capital Budget,
Capital Expenditure budget etc.
• Master Budget
– It is the summary of the budget incorporating
functional areas.
• Based on Flexibility
– Flexible Budget
• Budget which is prepared for different levels of
capacity utilization
• It is a series of fixed budgets
– Fixed Budget
• Budget prepared assuming a fixed capacity
utilization.
• Irrespective of the level of activity same budget
will be used
• Sales Budget
A sales budgetis a detailed schedule
showing the expected sales for the budget
period. An accurate sales budget is the key
to the entire budgeting in some way. If the
sales budget is sloppily done then the rest
of the budgeting process is largely a waste
of time.
• Thank You