BUDGETARY CONTROL
TECHNIQUES
BUDGET:
According to Brown and Howard, ‘A budget is a pre –
determined statement of management policy which
provides a standard for comparison with actual results
during a given period’.
Characteristics;
Primarily a planning device and serve as a basis for
performance evaluation and control.
Prepared in money terms or in quantities or both.
Prepared for definite future period.
Purpose is to implement the policies formulated for attaining
the given objectives.
BUDGETARY CONTROL:
Budgetary control is the analysis of actual performance
against the planned performance so that corrective actions
can be taken.
It is also called as system of controlling costs through
budget preparation.
Characteristics;
Establishment of Budget for each function
Comparison of actual performance with budgeted on
continuous basis
Analysis of Variation
Taking suitable remedial action
Revision of Budget
ESSENTIALS OF EFFECTIVE
BUDGETING
Support of Top Management
Participation of Responsible
Executives
Reasonable Goals
Clearly Defined Responsibility
Centres
Continuous Budget Education
Adequate Accounting System
Maximum Profits
Cost of the System
Integration with Standard Costing
OBJECTIVES OF BUDGETARY CONTROL:
1. Helps to plan and control the income and expenditure of
the organization.
OBJECTIVES OF BUDGETARY CONTROL:
2. Maximizes the profit for the
organization.
OBJECTIVES OF BUDGETARY CONTROL:
3. Provides adequate capital for working.
OBJECTIVES OF BUDGETARY CONTROL:
4. Coordinates the activities of different units in an
organization.
OBJECTIVES OF BUDGETARY CONTROL:
5. Helps to evaluate the performance.
OBJECTIVES OF BUDGETARY CONTROL:
6. Decentralizes the responsibilities.
CLASSIFICATIONS OF BUDGET:
1. Classification based on function:
1a) Sales budget:
It is the estimate of expected sales during a budget
period.
The factors to be consideredare plant capacity, past
sales data.
CLASSIFICATIONS OF BUDGET:
1. Classification based on function:
1b) Production budget:
Production budget is a forecastof the output for the
period analyzed.
The factors to be considered are plant capacity,
resource
availability, sales requirements.
CLASSIFICATIONS OF BUDGET:
1. Classification based on function:
1c) Labour budget:
It is the forecast of requirements of direct labour
essential to meet the production targets.
CLASSIFICATIONS OF BUDGET:
1. Classification based on function:
1d) Capital expenditure budget:
It includes all the initial investment cost of the
organization.
CLASSIFICATIONS OF BUDGET:
1. Classification based on function:
1e) Research and development budget:
Focuses on budget required to develop new
products.
CLASSIFICATIONS OF BUDGET:
1. Classification based on
function:
1f) Profit budget:
Profit budget is also called as
master budget.
CLASSIFICATIONS OF BUDGET:
2. Classification based on time:
2a) Long term budget:
Period of time for long term budgets are 5 to 10
years.
CLASSIFICATIONS OF BUDGET:
2. Classification based on time:
2b) Short term budget:
Period of time for short term budgets are less than 5
years.
CLASSIFICATIONS OF BUDGET:
2. Classification based on time:
2c) Current budget:
Includes the budget expense for day to day
activities.
CLASSIFICATIONS OF BUDGET:
3. Classification based on rigidity:
3a) Fixed budget:
Budget expenses that are predefined are called as fixed
budget.
CLASSIFICATIONS OF BUDGET:
3. Classification based on rigidity:
3b) Flexible budget:
Budget expenses that tends to vary are called as flexible
budget.
BUDGETARY CONTROL TECHNIQUES:
1. Planning – programme budgetary systems (PPBS):
Analyzing the basic objectives of policies and activity of
each programme in the organization.
Measuring the total cost and choosing the best
alternative.
BUDGETARY CONTROL TECHNIQUES:
2. Zero – based budgeting:
In this method, every next year budget is made on nil
base.
The expected income will be equal to the expected
expenses.
This process involves three steps: Scheduling, prioritizing
and resource allocation.
BUDGETARY CONTROL TECHNIQUES:
3. Variance analysis:
Estimated budget of the expenditure will
organization be
compared with actual accounting figures to measure
the variance.
BUDGETARY CONTROL TECHNIQUES:
4. Responsibility accounting:
The organization is classified as cost centre, profit centre
and investment centre.
Based on this classificationemployee will be
assigned with a target.
On the basis of achievement he / she will be rewarded.
BUDGETARY CONTROL TECHNIQUES:
5. Fund adjustment:
Top management will be altering the fund allocation
based on the requirement.
BUDGETARY CONTROL TECHNIQUES:
6. HR accounting:
It deals with human resource
control.
investment for
Investment on HR is a long any
term
e.g.: training and development
organization.
programme, disciplinary
programs.