Saturday, May 31, 2008

Budgetary Control

Q:- Define Budget, budgeting, budgetary control. Difference between budget and forecast. What is the main type of budget? How can you make a good budget or essential of good budget and budgetary control? What are advantages or objective merits and limitation of budgetary control?

Ans. Definition of budget

Budget is financial or quantitative statement. This statement shows the programs of future operation and expected result. It is made before work to be done.

Definition of budgeting

The process of applying of budget on different department is called budgeting.

Definition of budgetary control

Budget control is that type of control in which controller compares actual result with budget data and identify the difference and correcting the cause of difference.

Difference between budget and forecast

1. Definition

The quantitative form of planning is budget.

Forecast is just estimation of happening any event in future .

· Essential , Requisites of successful budgetary control .:-

1. Budgetary control must be objective :-

Budgetary control mean essential is to make budget on the basis of objective . First of all we should identify our objective then it convert ed in quantitative form without well defined object we can not control the organization through budgetary control control .

2. Budgetary control must be flexible:-

This is the essential point of budgetary control. In budgetary control, we should make budget flexible.
According to changes, we change our budget.

3. Budgetary control must be through top management

For successful budgetary control, it is necessary that budget must be made by top management not middle management level

Main type of budget

A ) On the basis area coverage

i) Sale budget

Sale budget is made by sale manager. This is sale department’s budget. It is just estimation of value of sale. But before making sale budget, sale manager must be kept following point in the mind.
a) Business cycle b) changes seasons c) development of market.

ii) Production budget

Production budget is made by production manager. This is production department budget. This is just estimation of the value of production in form of quantity and amount. Before making production budget, production manager must be kept following point in his mind a) demand of product b) supply of raw material, labour c) closing stock’s quantity.

iii) Personnel budget

Personnel budget is made by personnel manager. This is personnel’s department budget. This is just estimation of following

I) No. of workers

II) No. of working hours

III) Rate per hour

iv) Cash budget /Financial budget

Cash budget or finance budget

This is made by finance accountant. This is finance’s department budget. This is just estimation of reception and payment of cash and bank

v) Capital Expenditure budget

Capital expenditure budget is made by financial accountant. This is made by finance’s department. This is just estimation of capital expenditure.

3. Master Budget

Master budget is theme budget of all functional budgets. Master budget is made for whole organization when all things like sale, purchase, cash, capital expenditure is estimation in one budget. Then this budget is called master budget.

B) On the basis of capacity

i) Fixed budget

fixed budget is just estimation of fixed cost when we change our cost if changing the level of production .

ii) Flexible budget

Flexible budget is just estimation of variable cost when we change our cost if changing the level of production.

C) On the basis of period

i) Long term budget

This is just estimation of capital expenditure and other long term events. This budget is for more than one year.

ii) Short term budget

This budget is for one year only. Sale budget, purchase and cash budget are main example of this budget.

 Zero base budgeting (ZBB)

It is come to the existence when ex- president of America Zimi carter use this budget to control state expenses .In this budget, we start from zero cost level. Take last year‘s cost as base year cost .Estimate current year cost on the basis of previous year cost. So this is called zero base budgets.

Explain with example

Suppose we start our business with zero. So every year’s estimation of cost is like first year’s estimation of cost. But last year is our guide. In this budget we decide in advance what to be done.

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