An Evaluation of Budgeting and Budgetary Control in Brewery Industry

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    AN EVALUATION OF BUDGETING AND BUDGETARY CONTROL IN

    BREWERY INDUSTRY; A CASE STUDY OF BENUE BREWERY

    LIMITED (BBL), MAKURDI

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    TABLE OF CONTENT

    Title Page: - - - - - - - - - - i

    Declaration - - - - - - - - - - ii

    Approval page - - - - - - - - - iii

    Dedication - - - - - - - - - - iv

    Acknowledgements - - - - - - - - v

    Table of Contents: - - - - - - - - vi

    Abstract: - - - - - - - - - - ix

    CHAPTER ONE: INTRODUCTION

    1.1 Background to the Study - - - - - - - 1

    1.2 Statement of Problem - - - - - - - 3

    1.3 Significance of the Study - - - - - - 4

    1.4 Objectives of the study - - - - - - 5

    1.4 The research Questions - - - - - - - 6

    1.5 Research Hypothesis - - - - - - - 6

    1.7 Scope of the Study - - - - - - - 7

    1.8 Structure of the Study - - - - - - - 7

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    CHAPTER TWO: LITERATURE REWIEW

    2.1 Introduction - - - - - - - - - 9

    2.2. Conceptual Framework of Budgeting and Budgetary Control - 10

    2.2.1 Meaning of Budget and Budgeting - - - - - 10

    2.2.2 The Principles of Good Budgeting - - - - - 12

    2.2.3 Importance or Purpose of Budgeting - - - - - 13

    2.2.4 The Broad Classification and Preparation of budget - - 14

    2.2.5 Types of Budget - - - - - - - - 16

    2.2.6 Budgetary Control - - - - - - - - 19

    2.2.7 Condition necessary for the Success of a budgetary System - 20

    2.2.8 Variance Analysis - - - - - - - 21

    2.2.9 When to Investigate Variance - - - - - - 22

    2.3 Review of Prior Studies - - - - - - - 23

    2.4 Budget Implantation - - - - - - - 25

    2.5 Brief History Background of the case study - - - - 27

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    5.2 Conclusions - - - - - - - - - 46

    5.3 Limitation of Study - - - - - - - - 47

    5.4 Recommendations of Study - - - - - - 48

    5.5 Suggestions for Further Research - - - - - 50

    Reference - - - - - - - - - 51

    Appendix - - - - - - - - - 53

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    ABTSRACT

    Budget and budgetary control, both at management and operational level looks

    at the future and lays down what has to be achieved. Control checks whether ornot the plans are realized, and puts into effect corrective measures where

    deviation or shortfall is occurring. This study examines how budget and

    budgetary control can impact on the performance of the BBL, as considered in

    this study. We reviewed the performance of BBL in previous and recent times.

    We found out that the performance of this industry depends much on the

    budgetary system in achieving its objectives. An empirical investigation was

    undertaken, using the simple correlation analysis techniques specifically the

    Pearson Product Movement Correlation. In most of the cases considered

    established the presences of strong relationship between turn over as a variable

    of budget and performance indicators-EPS, DPS, and NAS, of BBL. Following

    our findings, we advise managers and business operators to pay more attentionto their budgetary control system, for those without an existing budgetary

    control system, they should put one in place, and those with a dummy or passive

    budgetary control system, It is time they re- establish a result- oriented

    budgetary control system as it goes a long way in repositioning the

    manufacturing industry from its creeping performance level to an improved

    high capacity utilization point.

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    CHAPTER ONE

    INTRODUCTION

    1.1 Background to the Study

    There is hardly any aspect of human Endeavour that does not have

    economic implication because economics as a science is essentially

    concerned with the study of scarce resources, there allocation,

    management and utilization. This reality is what gave birth to a business

    budget in the 20th

    century. The term budget was first put to use in Europe

    to refer to first, a leather bag used to carry statement of revenue and

    expenditure, and later the term was referred to as the statement itself

    and not just the container.

    Today, a budget play a greater role in the planning and control

    process of basically all organization, be it private or public sector,

    ministries and non profit-making organizations.

    Organizations developed plans on how to go about its future

    operations. While control measures are used to correct any deviation

    from the plans. The budgetary process is an integral part of both planning

    and control. Budgeting is making plans for the future, implementing those

    plans and monitoring activities to see whether they conform to plans. To

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    do this successfully, it requires maximum commitment by the top

    management, corporative and motivated middle management and staff,

    and well organized reporting system.

    The importance of budget to households, business organization can

    never be over emphasized. Most families or members of households have

    at point developed a budget to guide them in allocating resources over a

    specific period of time. The family budget is a planning tool, but it also

    serve as control behaviour of family members by setting limits on what

    can be spent within each budget category. Budget enables house to know

    how much of their money is being spent. Such a situation can easily lead

    family into unexpected debt and severe financial difficulties.

    Likewise, budgets play a similar planning and control role for

    managers within business units and budgets are a central part of a design

    and operation of management accounting system. As in household

    budget, budget in business organizations reflects in quantitative term,

    how to allocate financial and other resources to each organizational

    subunit, based on its planned activity objective. Budgeting activity to

    organizational unit can reflect how well unit managers understand the

    organizational and provides an opportunity for the organizations top

    planners to correct misperceptions about the organizations goal.

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    Budgeting also aims at coordinating the organizations many activities. For

    example, budget show the effect of sales level or volume on purchasing,

    production, administrative activities etc.

    In reality, budgeting is the most widely used accounting tool for

    planning and controlling the activities of organizations. Budgeting system

    helps managers to forecast. By looking into the future and planning

    managers are able to anticipate and correct potential problems before

    they arise. Managers can then focus on exploiting opportunities instead of

    fighting fires as one observer said few businesses plan to fail, but many

    of those that flop fail to plan (Horngren, et al, 2002; 178).

    The research is deeply concerned with the extent to which

    management of Brewery companies seize the advantages associated with

    budgeting process. The researcher is interested in finding out if managers

    of Brewery companies effectively and efficiently design and implement

    realistic budgets. Do they use budgets as a potent tool for resource

    allocation and control?

    The choice of Benue Brewery Limited as a case study for this

    research work is informed by the industrys relatively long-life span of

    production. Secondly, the relative low level of production at the industry

    has also prompted the researcher to investigate its budgetary system.

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    1.3Significance of the Study

    The study will be significant in various ways to various parties, as

    will be seen below;

    It will present in a precise manner, the importance of the role of

    budgeting and budgetary control in achieving organizational goals.

    To managers and potential managers, the findings of the research,

    suggestion and recommendations based on the findings will be a good

    guide for future management of resources using budgeting and budgetary

    control. The outcome of the study will help widen their horizons on

    resource allocation and control. Operating staffs will also be informed on

    how they can improve their operation through the use of budgets as guides.

    The research report will also serve as a reference material to students

    of accounting, especially those with a bias in management accounting.

    The research will also provide ample information to external

    auditors on how resources of companies are allocated and managed. This

    will certainly enhance their audit planning.

    Finally, this study is intended to unveil those factors that are

    responsible for poor budget implementation frequently leading to their

    failures while also highlighting the control mechanisms required for a

    successful budget implementation.

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    1.4 Objectives of the Study

    The objective of this research work includes the following:

    i. To ascertain the role of budgeting and budgetary control in

    achieving the objectives of Brewery industries.

    ii. To investigate the relationship that exists between the designing

    and implementation of budgets in Brewery industries.

    iii. To find out the relationship between poor performance and poor

    implementation of budgets in brewery industry.

    1.5Research Question

    1. What is the relationship between budgetary control and the achievement

    of companies performance

    2. Is there any relationship between the designing and implementation of

    budgets in companies?

    3. What is the relationship between poor performances and poor

    implementation of budgets?

    1.6 Research Hypothesis

    Ho1: There is no relationship between budgetary control and the

    Achievement of companys objectives

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    Hu1: There is relationship between budgetary control and the achievement

    Of companiesobjective

    Ho2: There is no relationship between the design and the implementation of

    Budgets in companies performance

    Hu2: there is relationship between the design and the implementation of

    budgets

    In companies performance

    Ho3: There is no relationship between poor performance and poor

    Implementation of budget

    Hu3: There is relationship between poor performance and poor

    implementation

    of budget.

    1.7 Scope of the Study

    The research is intended to cover budgetary activities as they affect

    the realization of goals and objectives of Brewery industries. However,

    due to the diverse nature of Brewery industries with varying objectives

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    and the time frame required for the report of the research , the research

    has been scaled down to a case study of Benue Brewery Limited (BBL),

    Makurdi. The period under investigation is from 2009-2012

    1.8 Structure of the Study

    This research work is divided into five (5) chapters with chapter

    one as the introductory chapter which is divided into nine (9) sections

    including background to the study, statement of problem, objective of the

    study, the research questions, research hypotheses, significance of the

    study, scope of the study, the structure of the study and the definition of

    terms.

    Chapter two is the literature review which includes the conceptual

    framework of budgeting and budgetary control, review of prior studies,

    chapter summary and a brief historical background of the case study

    which is Benue Brewery Limited (BBL).

    Chapter three (3) is the research methodology made up of the

    introduction, research design, population and sample size, nature and

    sources of data, instrument and procedure for data collection, description

    of variables employed, techniques of data processing and analysis,

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    problem and limitation of data collection and design and chapter

    summary.

    Chapter four is the data analysis and result which is made up of

    introduction, data presentation and analysis, test of research hypotheses,

    evaluation of data and research findings.

    Finally, chapter five (5) is the summary, conclusions,

    recommendations which is made up of summary of findings,

    generalization of findings, limitation of study, conclusions,

    recommendations of study and lastly the suggestions for further research.

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