Budgetary Conrol

BUDGET, BUDGETING & BUDGETARY CONTROL:

1. BUDGET: A budget is a blue print of a plan expressed in quantitative terms.

2. BUDGETING: is technique for formulating budgets.

3. BUDGETARY CONTROL: refers to the principles, procedures & practices of achieving given objectives through budgets.

REQUISITIES FOR A SUCCESSFUL BUDGETARY CONTROL SYSTEM:
    Clarifying objectives.
    Proper Delegation & Responsibility.
    Proper Communication System.
    Budget Education.
    Participation of All Employees.
    Flexibility.
    Motivation.

1.  CLARIFYING OBJECTIVES
    Objectives must be clearly spelt out.
    In the absence of clear goals, the budgets will also be unrealistic.

2.  PROPER DELEGATION OF AUTHORITY & RESPONSIBILITY
    Involve every level of management.
    Finalized by the top management.

3.  PROPER COMMUNICATION SYSTEM
    Information regarding budgets should be quick

4. BUDGET EDUCATION
    Employees should be properly educated.
    Educated about the role.
    BC is not a control device should be used as a tool to improve their efficiency

5.  PARTICIPATION OF ALL EMPLOYEES
    For every segment of the business.
    Require active participation & involvement all employees.
    On the basis of past experiences.

6.  FLEXIBILITY
    Budgets are prepared for the future, which is always uncertain.
    Flexibility will make the budgets more appropriate and realistic.

7.  MOTIVATION
    Implemented by the human beings.
    Successful budgets depend upon the interest shown by the employees.
    All persons should be motivated.

CLASSIFICATION & TYPES OF BUDGETS:
A.    CLASSIFICATION ACCORDING TO TIME:
    1.  Long-term budgets.
    2.  Short-term budgets.
    3.  Current budgets.
B.    CLASSIFICATION ON THE BASIS OF FUNCTIONS:
    1.  Operating Budgets.
    2.  Financial Budgets.
    3.  Master Budgets.


CLASSIFICATION ACCORDING TO TIME:
LONG-TERM BUDGETS:
    Represent long term planning of the business.
    Done by the top-management.
    Not known to lower-levels of management.
    Lt’s are prepared such as CB, R&D & LTF.
SHORT-TERM BUDGETS:
    Generally for one or two years.
    Consumer goods industries like Sugar, cotton, textile etc
CURRENT BUDGETS:
    Budgets is generally of months and weeks.
    Current activities of the business.

CLASSIFICATION ACCORDING TO THE FUNCTIONS:
OPERATING BUDGETS:
    Sales budget.
    Production budget.
    Production cost budget.
    Purchase budget.
    Raw material budget.
    Labour budget.
    Manufacturing expenses.
    Administrative & selling expenses, budget.

PROGRAMME BUDGET:

    Expected revenue &
    Costs of various products or projects.
    Budget can be prepared for each product line or project showing revenues.
    PB useful in locating areas where efforts may be required to reduce costs & increase revenues.

FINANCIAL & MASTER BUDGET
FINANCIAL BUDGET
    Cash Budget.
    Working Capital Budget.
    Capital Expenditure.
    Income statement budget.
    Balance Sheet

MASTER BUDGET:
    Various functional budget are integrated into master budget.

ZERO BASED BUDGETING:
    At the time of preparation of annual budget, a base is determined from which the budgeting process is started.