Budgetary

Control
By Aakrati Rampal, Sauumye Chauhan, Jhanvi Dang, Shivani Sisodia & Hashmeet Kaur

Abudgetis a quantitative expression of a

plan for a defined period of time. It may
include planned sales volumes and
revenues, resource quantities, costs and
expenses.

What
is a
Budget
?
It expresses strategic plans of business
units, organizations, activities or events in
measurable terms.

What
Is
Budget
ary
Control
?

Budgetary control is the process of

developing a spending plan and
periodically comparing actual
expenditures against that plan to
determine if it or the spending patterns
need adjustment to stay on track.
This process is necessary to control
spending and meet various financial
goals.

Objectives Of Budgetary Control

Planning

Aim of planning is to first define the broad aims and objectives of the
businesses. Then, strategies to achieve the desired goals are formulated
and tentative schedule of the proposed combinations of the various
factors of production, which is the most profitable for the defined period.

Coordination

Co-ordination is a managerial function under which all factors of

production and all departmental activities are balanced and
integrated to achieve the objectives of the organization. Budgeting
provides the basis for individuals in all departments to exchange
ides on how best the organizations objectives can be realized.

Controls
And
Performance
Evaluation

There is continuous comparison of actual performance with the

budgeted performance. Variances are highlighted and corrective
action can be initiated.

All people in the organization must know the objectives, policies and

Communication performance of the organization. They must have a clear understanding

of their part in the organizations goals.

Advantages Of Budgetary Control

Compels management to think about the future
Forces management to look ahead, to set out
detailed plans for achieving the targets for
each department, operation and (ideally) each
manager, to anticipate and give the
organization purpose and direction
Promotes coordination and communication.
Clearly defines areas of responsibility
Provides a basis for performance appraisal
Enables remedial action to be taken as
variances emerges
Motivates employees by participating in the
setting of budgets

Budget

ProductionBudget
LaborBudget

SellingandDistribut
ion
OverheadBudget

FactoryOverheadBu
dget

Master Budget

Current

MaterialsBudge
t

Cash Budget

Long-Term

Sales Budget

CapitalExpenditure
Budget

Short-Term

According to
Function

Administrative
ExpensesBudget

According
to Time

According
to
Flexibility
Fixed
Budget
Flexible
Budget

Long
Term
Budget

Thebudgetsarepreparedtoshowthelong
term
planningofthe organization.
Thisbudgetispreparednormallyforaperio
dof5to 10years.
Example: Capital expenditure budget,
research and development, long term
finances etc.

Accordi
ng
To Time

Short
Term
Budget

Shorttermbudgetsarethosewhichhaveto
be
preparedforaperiodofoneortwoyears.
Example:CashBudget,MaterialBudgetet
c.

Current
Budget

Currentbudgetisonewhichhastobeprep
ared
foraveryshortperiodsayamonthoraqu
arteryearandisrelatedtothecurrent
conditions.

Accord
ing to
Functio
n

Sales
Budget

Salesbudgetisaforecastoftotalsales(vol
ume)
duringthebudgetperiod.
Itmaycontaintheinformationregardingth
esales,
monthwise,productwise,andareawise.
Thisbudgetis
preparedbythesalesmanager.

Product
ion
Budget

Theobjectiveofthisbudgetistodetermine
the
quantityofproductionfora
budgetedperiod.
Inotherwords,itisaquantity
ofunitstobeproducedduringabudgetper
iod.

Materia
ls
Budget

Materialprocurementbudgetisanestimate
of
quantitiesofrawmaterialstobepurchased
for
production
duringthebudgetperiod.Ithelpsthe
organization
toformulateeffectivepurposepolicy
Materialsbudgetshouldbepreparednorma
ofrawmaterials.
llytaking intoaccountthe
followingfactorsi.e.,availabilityof
finance,storagefacilities,pricetrendsinth

Accord
ing to
Functio
n

Accord
ing to
Functio
n

Accord
ing to
Functio
n

Accordi
ng to
Flexibil
ity

Maste
r
Budge
t

Theaggregationofalllower- level
budgets produced bya
company'svariousfunctionalareas
Alsoincludesbudgetedfinancialstatem
ent,a cash forecast
andafinancingplan.
Typicallypresentedineither
amonthly format
quarterlyformat
Usuallycoversacompany'sentirefiscal
year
Isthecentralplanningtoolthatamanag
ement
teamuses
Todirect
theactivitiesofacorporation
Tojudgetheperformanceofitsvariou

Thebudgetsthatrollupintothemasterbudgetin
clude:

Directlaborbudget
Directmaterialsbudget
Endingfinishedgoodsbudget
Manufacturingoverheadbudget
Productionbudget
Salesbudget
Sellingandadministrativeexpensebudget

Oncethemasterbudgethasbeenfinalized,thea
ccounting staffmayenteritintothe companys
accounting software, so that software can issue
the financial reports
comparingbudgetedandactualresults.

Zero
Base
Budgeti
ng

Aplanningandbudgetingprocess
whichrequireseachmanagerto
justifyhisentirebudgetrequestin
detailfromscratch(hencezerobase)
Shiftstheburdenofprooftoeach
manager to justify why
heshouldspendmoneyatall.
Theapproachrequiresthatall
activitiesbeanalyzedindecision
packageswhichareevaluatedby
systematicanalysisandrankedintheor
derofimportance.

Stepsi
n
Zero
Base
Budgeti
ng

1.Determinationofobjectives
2.Determinationofextentof
application
3.Identificationofdecision
makingunits
4.Throughthecostbenefitanalysis
5.Preparationofbudgets

THANK YOU