Budgetry Control

Topics: Variable cost, Costs, Budget Pages: 18 (4303 words) Published: February 21, 2013

Budget is a plan which is expressed in terms of definite members: Eg. of a plan – Production has to be increased in the next quarter Eg. of a budget – Production has to improve by 10000 units from the last quarter to the next quarter.

According to ICMA “budget is a financial & / quantitative statements, prepared & approved prior to a defined period of time of the policy to be pursued during that period for the purpose of attaining a given objective. They may include income, expenditure & the employment of capital”.

Budgetary Control – “It is the process of utilizing the various budgets like production budget, sales budget, etc,. for the purpose of internal control”. This is done with intention of minimizing the wastage & maximizing the efficiency of various departments.

According to ICMA terminology budgetary control as “the establishment of budgets relating the responsibilities of executives to the requirements of the policy & the continuous comparison of actual with the budgeted results either to secure by individual actions the objective of that policy to provide basis for its revision”.

Steps involved in the Budgetary Control Techniques:

1. Fise the objectives clearly.
2. Formulating the necessary plans to ensure that the desired objectives are achieved. 3. Translating the plans into budgets.
4. Relating the responsibilities of executives to the budgets. 5. Continuous comparison of the actual results with that of the budget & the ascertainment of deviations (Positive/negative). 6. Investigating into the deviations & establishing the causes. 7. Presentation of information to the management relating the variances to individual responsibilities. 8. Corrective action of the management to present recurrence of variance

Types of Budget

Based on FunctionsBased on Rigidity
Master Budget:- It is a budget which summarises all the functional budgets.

According to ICMA, “A master budget is the summary budget incorporating its components functional budgets & which is finally approved, adapted & employed”.

According to ICMA, “A budget which is designed to remain unchanged irrespective of the volume of output/turnover attained”. – Fixed Budget.

* According to ICMA, “A budget which, by recognising the difference in behaviour between fixed & variable cost in relation to fluctuations in output/turnover, is designed to change appropriately with such fluctuations”. BUDGETARY CONTROL

Meaning of Budget:
According to Brown and Howard, “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.”

The act of preparing budgets is called budgeting. In the words of Batty, “the entire process of preparing the budgets is known as budgeting.

Meaning of Budgetary Control:
Budgetary control is a system of controlling costs through preparation of budgets. Budgeting is thus only a part of budgetary control. According to CIMA, “Budgetary control is the establishment of budgets relating the responsibilities of executives of a policy & the continuous comparison of the actual with the budgeted results, either to secure by individual actions the objective of that policy to provide basis for its revision”.

Forecast & Budget:
It is important to note carefully the distinction between a forecast and a budget. A forecast is a prediction of what may happen as a result of a given set of circumstances. It is an assessment of probable future events. A budget, on other hand, is a planned exercise to achieve a target. It is based on the pros and Cons of a forecast. Forecasting thus precedes the preparation of a budget. Thus the main point of distinction between the two is that forecast is concerned with ‘probable events’ while budget relates to ‘planned events’. Furthermore, forecast can be made by anybody, whereas a budget, being an enterprise objective, can be set...
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