Module V – Budgetary Control
This PDF contains complete study material for Module V: Budgetary Control. It covers budgeting concepts,
objectives, types of budgets, budgetary control techniques, cash budget, production budget, purchase budget,
flexible budget, fixed budget, advantages, limitations, and examination tips.
1. Meaning of Budget
A budget is a financial and quantitative statement prepared before a specific period of time. It shows the expected
income, expenses, production, sales, and other activities of a business. A budget acts as a plan for future
operations and helps management achieve organizational goals efficiently.
2. Meaning of Budgetary Control
Budgetary Control is the process of preparing budgets for different activities of the organization and comparing
actual performance with budgeted performance to identify deviations and take corrective action. It is an important
technique of management control.
3. Objectives of Budgetary Control
• To plan future activities • To coordinate departmental operations • To control costs and expenses • To improve
efficiency • To help management decision making • To measure actual performance • To increase profitability
4. Advantages of Budgetary Control
• Proper planning of business activities • Better coordination among departments • Effective cost control •
Improved utilization of resources • Better decision making • Helps in performance evaluation
5. Limitations of Budgetary Control
• Budgets are based on estimates • Time-consuming process • Difficult during uncertain conditions • Resistance
from employees • Requires skilled management
6. Essentials of Successful Budgetary Control
• Clear organizational structure • Proper communication • Realistic targets • Coordination among departments •
Continuous monitoring • Support from top management
7. Types of Budgets
Budgets can be classified into: • Fixed Budget • Flexible Budget • Functional Budget • Master Budget • Cash
Budget • Production Budget • Purchase Budget
8. Fixed Budget
A Fixed Budget is prepared for a fixed level of activity and does not change with changes in output. Features: •
Prepared for one level of activity • Simple to prepare • Less flexible Limitations: • Not suitable for changing
business conditions
9. Flexible Budget
A Flexible Budget changes according to the level of activity or production. Features: • Adjusts with production
changes • More realistic • Useful for cost control Advantages: • Better performance evaluation • More accurate
comparison
10. Functional Budgets
Functional Budgets are prepared for specific functions or departments. Examples: • Sales Budget • Production
Budget • Purchase Budget • Cash Budget
11. Production Budget
A Production Budget estimates the quantity of goods to be produced during a period. Formula: Production =
Expected Sales + Closing Stock – Opening Stock Importance: • Ensures proper production planning • Avoids
overproduction and underproduction
12. Purchase Budget
A Purchase Budget estimates the quantity and cost of materials to be purchased. Formula: Purchases = Material
Required + Closing Stock – Opening Stock It helps ensure continuous supply of materials.
13. Cash Budget
A Cash Budget estimates expected cash receipts and cash payments during a period. Objectives: • To maintain
adequate cash balance • To avoid cash shortages • To plan borrowing and investments Types: • Short-term cash
budget • Long-term cash budget
14. Master Budget
A Master Budget is a summary of all functional budgets prepared for the organization. It includes: • Budgeted
Income Statement • Budgeted Balance Sheet • Cash Budget
15. Practical Illustration
Example: Expected Sales = 10,000 units Opening Stock = 1,000 units Closing Stock = 2,000 units Production
Budget: = 10,000 + 2,000 – 1,000 = 11,000 units
16. Difference Between Fixed and Flexible Budget
Fixed Budget: • Prepared for one level of activity • Less flexible • Less realistic during changing conditions Flexible
Budget: • Prepared for different levels • More flexible • Better for performance evaluation
17. Examination Tips
• Learn formulas carefully • Practice numerical questions • Understand differences between budgets • Write proper
formats in answers • Focus on production and cash budget numericals
18. Conclusion
Budgetary Control is an important managerial tool that helps in planning, coordination, and controlling business
activities. It improves efficiency, profitability, and proper utilization of resources.
Comparison Table: Fixed Budget vs Flexible Budget
Basis Fixed Budget Flexible Budget
Activity Level One level only Multiple levels
Flexibility Less flexible Highly flexible
Usefulness Limited usefulness Better for control
Suitability Stable conditions Changing conditions