INTRODUCTION

Planning is the primary and controlis the last

function of management.bugetingand budgetory
control occupies an important place among the
various techniques which are used in performing
these functions.

Budget, Budgeting & Budgetary

Control

A Budget is a blue print of a plan expressed

in quantitative terms.
Budgeting is technique for formulating
budgets.
Budgetary control, on the other hand, refers
to the principles , procedures and practices
of achieving given objectives through
budgets.

MEANING OF BUDGET
A budget is the monetary or quantitative
presentation of business plans and policies to
be pursued in the future period of time.
ACC. TO I.C.M.A;LONDON
A budget is a financial statement prepared prior
to a predetermined period of time of the policy
to be pursued during that period for the
purpose of attaining given objectives.

ACC. 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 received.

MEANING OF BUDGETING

It is a part of management process which includes

preparation of budget,budget control,budget coordination and all those activities that are related
to budget..
ACC. TO SHILINGLAW:
Budgeting is the preperation of comprehensive
operating and financial plans for specific intervals
of time.

ACC. TO WILLIAM J. BATTY

Budgeting is a kind of future tense

accounting in which the problem of future
are met on paper before the transaction
actually occur

MEANING OF BUDGETORY
CONTROL
ACC. TO J. BATTY
Budgetory control is a system which uses
budget as a means of planning and
controlling all aspects of producing and/or
selling commodities or services.

ACC. TO BROWN $ HOWARD

Budgetory control is a system of controlling

costs which includes preparation of budgets,
co-ordinating the departments and
establishing responsibilities, comparing actual
performance with the budgeted and acting
upon results to achieve maximum
profitability.

DIFF.IN BUDGET ,BUDGETING

$BUDGETORY CONTROL

Budget $ budgeting are narrow concept while budgetory

control is a wider concept

If there is a budget $ budgeting, it is not necessary that

there should be budgetary control also but if there is
budgetary control there must be budget $ budgeting.

Budgets are business estimates for future period,

budgeting is the process of preparing these estimates
while budgetary control is a system of achieving
performance on the basis of budgets.

Contd..

Budget and budgeting are parts of

planning whereas budgetary control is
linked with co-ordination and control.

Budget is administration of financial

plan.

OBJECTIVES OF
BUDGETORY CONTROL
1. To Ensure Planning For Future
2. To Co-ordinate The Activities Of Different
Department
3. To Operate Various Cost Centers And Departments
With Efficieney And Economy.
4. Elimination Of Wastes And Increase In Profitability.
5. To Anticipate Capital Expenditure For Future.

6. To Centralize The Control System.

.
7. Correction Of Deviation From Established
Standards.
8. Fixation Of Responsibility Of Various Individuals
In The Organization.
9. To Make Cost Accounting More Systematic &
Reliable.
10. To Determine Various Short Term Or Long Term
Financial And Physical Target.

ADVANTAGES OF
BUDGETORY CONTROL

Maximization Of Profit.
Co-ordination.
Specific Aim.
Tools For Measuring Performance.
Optimum Utilisation Of Resources(economy)
Determining Weakness.
Corrective Action.
Consciousness.
Reduce Costs.
Introduction Of Incentive Scheme.

DISADVANTAGE OF
BUDGETORY CONTROL

Uncertain Future.
Revision Required.
Discourage Efficient Persons.
Problem Of Co-ordination.
Conflict Among Different Departments.
Depend Upon Support Of Top Management.
It Requires Too Much Time And Cost.

Features / Requisites of Good

Budgetary control system:

Clarifying objectives
Delegation of authority & responsibility
Proper communication system
Budget education
Participation of all employees
Flexibility
Motivation

Installation / Essentials Of
Budgetory Control.

Creation Of Budget Centers.

Arrangement Of Adequate Accounting Records.
General Instruction About Budget Techniques.
Preparation Of Organizational Charts.
Establishment Of Budget Committee.

 Preparation

Of Budget Manual

Determination Of Budget Period

Determination Of Key Factor
Determination Of Level Of Activity.
Budget Report.

CREATION OF BUDGET
CENTERS

The First Step In Budgetary Control Is The

Creation Of Budget Centers.
Budget Center Refers To Those Sections Or
Departments Of The Concern Which Can Be
Defined Separately From The View Of Budgetary
Control.
It Is Necessary For Cost Control purposes.The
Appraisal Of Performance Of Different Parts
Become Easy When Different Centers Are
Establish.

ARRANGEMENT OF ADEQUATE
ACCOUNTING RECORDS

the accounting system and records should

be designed in such a manner that the
information required for the preparation of
budget and evaluation of performance may
be available easily and regularly.

GENERAL INSTRUCTION ABOUT

BUDGET TECHNIQUES

all person in the organization, who are

linked with the collection of information
for budget and its execution should be
given necessary education and instruction
about budget techniques.

PREPERATION OF
ORGANISATIONAL CHART

an organizational chart should be prepared

which define the functional responsibilities
of each member of management team.
this chart helps each officials to know his
responsibility and position in the
organizational hierarchy.

BUDGETORY CONTROL SYSTEM

MANAGING DIRECTOR

BUDGET COMMITTEE
BUDGET DIRECTOR OR CONTROLLER

PRODUCTION
MANAGER

[PRODUCTION
PRODUCTION
BUDGET
& PLANT
UTILISATION
BUDGET
PLANTBUDGET]

SALES
MANAGER
S

A
[] SSALES &
A
ADVERTISEMENT
COST
L BUDGET
E

FINANCE
MANAGER

RECEIPT &
PAYMENY
BUDGET

ACCOUNTS
MANAGER

COST
BUDGET

R&D
MANAGER

R&D
BUDGET

ESTABLISHMENT OF BUDGET
COMMITTEE

in small enterprise budget may be

performed by one executive in consultation
with various officials. However, in large
organization a budget committee which
remains responsible for the whole system
of budget preparation and budget control.

PREPERATION OF BUDGET
MANUAL

it is a document which sets down the

responsibilities of the person engaged in
formulation of budgets.
Details Included In Manual Budget Are
objectives &policies of budgetary plan,
duties and responsibilities of various officials
the length of various budget period.
dates for submitting budget estimates & achievements.

DETERMINATION OF BUDGET
PERIOD

the budget period is also defined in

budgetary control, i.e, the length of period
for which the budget is to be drawn.
no standard time is fixed for all types of
budgets but it depends upon objectives of
budget, nature of business, market
condition etc

DETERMINATION OF KEY
FACTOR

key factor is known as limiting factor

because it express the limitation or
shortage of a particular factor such as
shortage of order, non availability of
materials, shortage of labour etc . It should
be noted that any key factor should not be a
permanent key factor.

DETERMINATION OF LEVEL
OF ACTIVITY

in preparing budget, level of activity is also

determined, i.e., the level of output or sales
the company can reasonably expect to
achieve during budget period. This level of
activity is essential in production planning
because it decides material and labour
requirement..

BUDGET REPORT

the process of budgetary control completes

with the submission of budget report. It
presents actual result along with
comparison with budget estimates and thus
deviations are made if necessary.

Types of
Budgets

TYPES OF BUDGETS.
I.

1.

CLASSIFICATION ACC. TO TIME

LONG TERM BUDGETS: they are
related with the long term planning of
business. the period of such budget varies
between 5 to 10 yrs. They are prepared in
terms of physical quantities. for ex: R$D
budget and capital expenditure budget.

2. SHORT-TERM BUDGET:
these budgets are prepared generally for a period of 1 to
5 yrs. these are always prepared in monetary units and
are more precise than long-term budgets.

3. CURRENT BUDGET:
these budgets are prepared for a period of one month
to twelve month. the main objective of this budget is
to make adjustments in short-term budgets
according to current conditions.

II.
1.

ON THE BASIS OF FLEXIBILITY:

FIXED BUDGET: it is also known as

static budget. it is prepared for single level
of activity and single set of business
condition. Acc. to I.C.M.A, London,
fixed budget is a budget which is designed
to remain unchanged irrespective of the
level of activity actually attained.

2.

FLEXIBLE BUDGET

flexible budget is that budget which present cost ,

revenues and profits at various levels of business
activity , i.e., various volumes of output and sales .
according to i.c.m.a , london , a flexible budget may
be defined as a budget which is designed to charge in
accordance with level of activity attained.

Difference between flexible and fixed budget.

Basis

Rigidity

Conditions

Fixed Budget

Flexible Budget

A flexible budget
A fixed budget
remains the same is recast to suit
Irrespective of the the change
changed situation. circumstances.
It assumes that

conditions will
remain constant

This budget is
changed if level of
activity varies.

Basis

Fixed budget

Cost
In this cost are not
classification classified acc.
to their nature
Forecasting Forecasting of
accurate result is
difficult
Cost cannot be
Cost
ascertainment ascertained due to
change circumstances

Flexible budget
The cost are studied
as per their nature
like fixed variable.
It helps in making
accurate forecasts.
Cost can easily be
ascertained

III. ON THE BASIS OF FUNCTION

1.

MASTER BUDGET :is a consolidation

summary of the various functional budgets .
according to some experts , budgeted profit and
loss account and budgeted balance sheet may be
treated as master budegetd . in brief , master
budget depicts the picture of total plans during
the budget period and it covers information
relating to production , cost , sales , profit , etc .

2.FUNCTIONAL BUDGETS:
they are also known as departmental budgets
or subsidiary budgets. all those budgets are
placed in this category which are prepared
either on the basis of functions or departments
in a business concern.the general

FUNCTIONAL BUDGETS

OPERATING BUDGETS

FINANCIALBUDGETS

SALES BUDGET

CASH BUDGET

PRODUCTION
BUDGET

CAPITAL
EXPENDITURE
BUDGET

COST BUDGET

SALES BUDGET

sales budget is a forecast of sales during

budget period. it presents the sales
projection in terms of quantity, value,
period, sales area ,product, etc. it should be
noted that sales budget is a starting point of
budgetary system and all other budgets in a
business concern are prepared on the basis
of sales budget.

PRODUCTION BUDGET

it is a forecast of total output of the whole

organisation broken down into estimates of
output of various products to be produced
during budget period.its is bifurgated in
two parts one shows estimate in volume or
quantity and other showing production
costs.

COST BUDGET

this budget is prepared after determination

of the volume of output in production
budget and it presents an estimate of costs
of output planned for a budget period.

CASH BUDGET

it is a statement which gives an estimate of

the anticipated receipt and payments of
cash during budget period .it also gives
indication for the arrangements of shortage
and utilisation of surpluses.

CAPITAL EXPENDITURE BUDGET

this budget gives an estimate of the amount

of capital that may be required for
purchasing fixed assets needed for
fulfilling production requirements as
specified in the production budget.

PERFORMANCE BUDGETING

It has been defined as a budget based on

functions, activities and projects.
Acc. To The National Institute Of Bank
Manager,it is a process of
analyzing,identification,simplification and
crystallizing specific performance objectives of a
job to be achieved over a period in the framework
of the organizational objectives,the purpose and
objectives of the job.
It requires preparation of performance report and
then compare budgets and actual data and then
taking variances.

Process of Performance Budgeting

Development of performance criteria for various

programmes;
Assessment of performance of each programme
and by each responsibility unit;
Comparison of the actual performance with the
budge;
Undertaking periodic review of the programme
with the view to make modification as required

Performance Vs. Programme Budgeting :Performance Budgeting

Retrospective in outlook
Evaluate in the sense of
measuring
Concerned with process of
work
Activity analysis aimed to
achieve results
Focuses on work
programmes
Relevant to the problems of
lower & middle levels of
mgt.

Programme Budgeting
Prospective in outlook
Connotes planning

Concerned with the purpose

of work
Output analysis aimed to
achieve social objectives
Focuses on process of
allocating funds
Relevant to the problems of
top level management

ZERO-BASE BUDGETING
Introduction:ZBB is a new technique designed to revitalize budgeting.
This technique was first used by the U.S. Department of
Agriculture as long back as in 1961. In our country, the
institute of Chartered Accountants of India and the Institute
of Costs and Works Accountants of India have conducted
seminars to acquaint people with the ZBB technique.
However the system has not yet been implemented in real
terms in our country.

Limitations of Traditional Budgeting

The inefficiencies of a prior year are carry

forward in determining subsequent years
levels of performance
Managers tend to inflate their budget requests
resulting in more demand for funds than their
availability
Key problems and decision areas are not
highlighted

Contd

Decision-making is irrational in the absence of

rigorous analysis of all proposed costs and
benefits.
Managers are not encouraged to identify and
evaluate alternative means of accomplishing the
same objective
Programmes involving wasteful expenditure are
not identified resulting in avoidable financial and
other costs

Meaning of ZBB
The technique of ZBB suggests that an organization should
not only make decision about the proposed new
programmes but it should also, from time to time, review
the appropriateness of the existing programmes.
ZBB as the term suggests, examines a responsibility from
scratch. The reviewer proceeds on the assumption that
nothing is to be allowed because it was being done or
allowed in past.
Thus, it means writing on a clean slate.

Definition of ZBB
An operating planning and budgeting process which requires
each manager to justify his entire budget requests in detail
from scratch. Each manager states why he should spend any
money at all. This approach requires that all activities be
identified as decision packages which would be evaluated by
systematic analysis ranked in order of importance

Process of ZBB

Determination of the objectives of Budgeting.

Determination of the extent to which the ZBB is to
be introduced.
Development of decision units.
Development of decision packages.
Review and Ranking of Decision Packages.
Preparation of Budgets.

Advantages of ZBB

It provides systematic way to evaluate different

operations and programmes undertaken by
management.
It ensures that every programme undertaken by the
managers is essential for organisation & is being
performed in the best possible way
It enables the management to approve departmental
budget on the basis of cost benefit analysis

Contd

It helps in identifying areas of wasteful expenditures

It links budgets with the corporate objectives. Nothing
will simple be allowed only because it was being done
in the past.
It can be used for introduction and implementation of
the system of management by objectives

Limitations of ZBB

Implementation Problems
Decision Packages Formulation Problems
Ranking Decision Packages
Cost Problems