Budgetary Control

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a) Budget:
 Budget is the process of stating quantitavely, set aside for carrying out specific activities in a given period of time.  It helps to co-ordinate the activities of the organisation. Budgets are prepared for the whole company and for sub units. Tapal Pvt. Limited designs budget for each department in the organization and each department head is required to give their respective budget to the Cost and Budgeting Department.

b) Budgetary control:
 A control technique whereby actual results are compared with budgets.  Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets. The Cost and Budgetting Unit under the Finance Department is responsible for controlling the budget and approving the cost submitted by each department of Tapal Pvt. Limited.

A responsibility centre can be defined as any functional unit headed by a manager who is responsible for the activities of that unit. There are four types of responsibility centres which are followed by Tapal Pvt.Ltd: a) Revenue centres

A revenue centre is where budgetary outcome is measured by ability to generate set revenue level. Tapal Pvt. Ltd operates as a revenue centre for eg. In the sales and marketting department for the sales generated in relation to the allocated resources.

b) Expense centres
Expense center is a center where budgetary outcomes are based on achieving goals by operating within expense limit set by managerial judgement and discretion. Tapal Pvt. Ltd has departments like production, marketing, information technology and human resources and they have their expenses as purchases of raw material, advertising, maintanence and salaries etc.

c) Profit centres
Profit centres measure the budgetary outcome as the difference between revenues (outputs) and expenditure (inputs) Tapal Pvt. Ltd works wholly as a profit centre as each department formulates their budget keeping in view the revenues and costs.

d) Investment centres
Where outputs are compared with the assets employed in producing them. It ensures that managers focus on making good investment decisions in facilities and other assets. Tapal Pvt. Ltd is working as an investment centre as their budgetary outcome is not only based on their return on investment but they also include the costs and assets used in making the profit. Advantages of budgeting and budgetary control to Tapal Pvt. Ltd There are a number of advantages to budgeting and budgetary control: * Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organization purpose and direction.

* It promotes good morale and generates harmony in the organization.

* Promotes feeling of cost consciousness in employees.

* Promotes coordination and communication.

* Clearly defines areas of responsibility. Requires managers of budget centers to be made responsible for the achievement of budget targets for the operations under their personal control.

* A budget is a yardstick against which actual performance is measured and assessed.

* Motivates employees by participating in the setting of budgets.

* Improves the allocation of scarce resources.

Problems in budgeting at Tapal Pvt.Ltd
Whilst budgets may be an essential part of any activity they do have a number of disadvantages which rarely occur at Tapal, particularly in perception terms. 1) Budgets can be seen as pressure devices imposed by management, thus resulting in:

a) bad labor relations
b) inaccurate record-keeping.
2) Departmental conflict arises due to:
a) disputes over resource allocation
b) departments blaming each other if targets are not attained. 3) Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This...
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