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Budgetary control

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Budget

A budget is a plan relating to a period of

time expressed in quantitative terms. It is

concerned with a definite future period &is, therefore prepared in advance of the

period during which it is to be operated.

Budget is the expression of firms plan infinancial form for a period of time in the

future. J.F. Weston

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Budgeting

Budgeting means formulation of plans for future

activity covering Constructed objectives &

programs of activity & provide yardstick by

which deviations from achievements may be

measured.

Budgeting is a kind of future tense accountancy

in which the problems of future are meet beforethe transaction actually occurs.

William J. Batty

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Essentials of effective budgeting

system Support to top level management

Effective organisation

Clearly defined business policy

Cost concept

Effective Control

Budget formation

Maximising the profits

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Budgetary Control

Budgetary control is a technique & modern toolof managerial control through preparation ofvarious budgets.

It means worrying before work rather than after.

Budgetary control is the system of controllingcosts which includes the preparation ofbudgets,coordinating the departments &

establishing responsibilities, Comparing actualperformance with the budgeted & acting uponresults to achieve maximum profitability

Browns & Howard

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Characteristics of Budgetary

Control Planning

Coordinating

Recording

Control

Appraisal

Follow-up

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Objectives

Efficiency in production work

Importance of Cost accounts

Control on cost

Analysis of expenses & control on

income& expenditure

To know about cash requirements

Economy

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Advantages

Effective planning

Cooperation & team spirit

Tools for periodical evaluation Motivation to management

Development of cost consciousness

Evaluation of performance

Productive competition

Stability in business operation

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Limitation

The budgets are based on forecasts.

Objections by employees

Danger of rigidity

Expensive technique

No substitute of managment

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Budgetary Control Process

Establishment of budget centers

Establishment of adequate accounting records

Preparation of an organisation chart The Budget committee

Budget manual

Budget Period

Determination of key factors Level of activity

Flexibility of budgets.

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Budgetary Control Ratios

Activity Ratio:- Activity Ratio is measure of thelevel of activity attained over a period of time.

=Actual output in terms of standard hours *100

Normal or budgeted hours

Capacity Ratio:- this ratio indicates whether & towhat extent budgeted hours of activity areactually utilised.

=actual hours worked *100

Normal budgeted hours

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Efficiency Ratio:- It indicates the degree

of efficiency got in production.

= Standard hours for actual production *100Actual hours worked

Interrelationship

Activity Ratio=Efficiency Ratio*Capacity Ratio