budget management

Topics: Budget, Cost, Variable cost Pages: 9 (1729 words) Published: March 13, 2014
Budgetary Control
Meaning and Need for Budget
Everyone is familiar with the idea of a budget because it is essential in every walk of our life – national, domestic and business. A budget is prepared to have effective utilisation of funds and for the realisation of objectives as efficiently as possible. Budgeting is a powerful tool to the management for performing its functions (i.e., formulating plans, coordinating activities and controlling operations etc.) efficiently. CIMA London defines budget as, “A plan quantified in monetary terms prepared and approved prior to a defined period of time usually showing planned income to be generated and / or expenditure to be incurred during that period and the capital to be employed to attain a given objective.” Budgetary Control

Budgetary control is applied to a system of management and accounting control by which all operations and output are forecasted as far ahead as possible and actual results when known are compared with budget estimates. CIMA, London defines budgetary control as - The establishment of the budgets relating to the responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted result either to secure by individual action the objectives of that policy or to provide a firm basis for its revision. Budget, Budgeting and Budgetary Control

Rowland and William in their book entitled Budgeting for Management Control has given the difference between budget, budgeting and budgetary control as follows: “Budgets are the individual objectives of department, etc. whereas budgeting may be said to be the act of building budgets. Budgetary Control embraces all these and in addition includes the science of planning the budgets themselves and the utilisation of such budgets to effect an overall management tool for the business planning and control.” Thus, a budget is a financial plan and budgetary control results from the administration of the financial plan.

Functional Budgets
A functional budget is a budget which relates to any of the functions of an undertaking, e.g., sales, production, research and development, cash etc. the following functional budgets are generally prepared : Budget:Prepared by:

i) Sales Budget including
Selling and Distribution
Cost Budget Sales Manager
ii) Production BudgetProduction Manager
iii) Materials BudgetPurchase Manager
iv) Labour and Personnel BudgetPersonnel Manager
v) Manufacturing Overhead BudgetProduction Manager
vi) Administration Cost BudgetFinance Manager
vii) Plant Utilisation BudgetProduction Manager
viii) Capital Expenditure BudgetChief Executive
ix) Research and Development
Cost BudgetR & D Manager
x) Cash BudgetFinance Manager

Sales Budget

Sales being the principal budget factor, sales budget is the most important budget and forms the basis on which all the other budgets are built up. This budget is a forecast of quantities and values of sales to be achieved in a budget period. Every effort should be made to ensure that its figures are as accurate as possible because this is usually the starting budget. The Sales Manager should be made directly responsible for the preparation and execution of the budget. The sales budget may be prepared according to products, sales territories, types of customers, salesmen etc. In the preparation of the Sales budget, the sales manager should take into consideration the following factors: 1. Past Sales Figures and Trends

2. Salesmen’s Estimates
3. Plant Capacity
4. Availability of Raw Materials and Supplies
5. General Trade Prospects
6. Orders in Hand
7. Seasonal Fluctuations
8. Financial Aspects
9. Adequate Return on Capital Employed
10. Competition

Production Budget

Production Budget is a forecast of the total output of the whole organization broken down into estimates of outputs of each type of product with a scheduling of operations to be performed...
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