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Presented By:Arvinder GillEkta JindalHarmeet SinghIsha Arora
M.B.A-IB
Topic: Cost Control Techniques – Budgetary Control
“It is a powerful tool of management for performing its functions efficiently”
Fixes targets in terms of Money
Related to both management and accounting functions
Budget Forecast
Relates to Planned events Concerned with Probable events
Planned Separately for each accounting Period
Cover a long period
Comprises the Whole Business unit Cover a Limited Function
Tool of Control Does not connote any sense of control
Starts when Forecast ends Fun. Of Forecast ends with Forecast of likely Events
Made in respect of spheres related to Business
Made in several other spheres which may not connected with budgeting process
CIMA London Defines: “The establishment of budgets
relating to the responsibilities of executives to the requirements of the policies & the continuous comparison of actual with budgeted results either to secure the individual action the objectives of that policy or to provide a firm basis for its revision”
It is planned to assist the management in the allocation of responsibilities & authority to aid in making estimates & plan for the future.
Planning
Co-ordination
Control
Clarifying Objectives
Proper Delegation of Authority & Responsibility
Proper Communication Channel
Budget Education
Flexibility
Motivation
To Receive, revise & Approve Budget
To Receive report According to Schedule
To Pinpoint the responsibility
To participate the discussion
To Create coordination
To Revise & amend the Budget
To Prepare budget programmes
To prepare summary budgets
To Revise Budget According to Direction
To Collect actual Cost and Compare it
Classification according to Period
Classification on the basis of Function
Classification on the basis of Capacity
Classification on the basis of Condition
Long Term Budgets: The budgets which are
prepared to depict long term planning's of the business.
E.g. Capital expenditure, R&D, Long term finances.
Short Term Budgets: These are generally for 1 or
2 years and are in the form of monetary terms.
E.g. Sugar, cotton, textiles etc.
Current Budget. The budget relate to the
current activities of the business. It is generally for months and weeks.
Functional Budget: It is a budget which relates
too any of the functions of an undertaking. E.g. Sales, Production, R&D, cash etc.
Sales Budget Production Budget Cost of Production Budget Purchase Budget Personnel Budget
Sales Budget: It is a detailed schedule showing the expected sales for the budget period.
The sales manager should take into consideration the following factors.
a) Past sales figures and trendsb) Salesman estimatec) Plant capacityd) Availability of raw materiale) Seasonal Fluctuationsf) Financial aspect
Production budget: Forecasts quantity of production
that must be produced during each budget period.
Cost of Production Budget: it relates to obtaining the cost
of procuring the output.
Purchase Budget: It forecasts the quantity and
value of purchases required for production.
“It is a summary budget incorporating all functional budgets in capsule form made for the purpose of presenting in one report, the highlights of the budget forecast.”
Summarization
Accuracy
Profit Estimation
Information of balance sheet
The budget shows planned operations for the forthcoming period, including revenues, expenses and related changes in inventory
Point Of Distinction Fixed Budget Flexible Budget
1. Flexibility Inflexible Flexible
2. Condition Remain Static
Designed to Change
3. Classification Of Cost Not Classified Classified
4. Comparison Comparison is not Done Correctly
Realistic
5. Forecasting Difficult to Forecast Shows Clear Picture
Maximization of Profit
Co-ordination
Tool for Measuring Performance
Cost Reduction
Opposition against the very spirit of budgeting
Budgeting and changing economy
Time factor
Co-operation required