Tag: economic sources

Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. A budget is a means and budgetary control is the end-result. Budgetary control system enables the management to conduct business in the most efficient manner. Budgeting also aids in obtaining bank credit, as the main work of banks is to provide funds for business projects.

Budgetary control fixes targets. Each and every department is forced to work efficiently to reach the target. Thus, it is an effective method of controlling the activities of various departments of a business unit.

The main objectives of budgetary control are given below:

1. Defining the objectives of the enterprise.

2. Providing plans for achieving the objectives so defined.

3. Coordinating the activities of various departments.

4. Operating various departments and cost centres economically and efficiently.

:5. Increasing the profitability by eliminating waste.

6. Centralizing the control system.

7. Correcting variances from sit standards.

8. Fixing the responsibility of various individuals in the enterprise.

A budget is a detailed plain of operations for some specific future period. It is an estimate prepared in advance of the period to which it applies. It acts as a business barometer as it is complete programmed of activities of the business for the period covered
Besides' budgetary control' refers to a system of management and accounting control by which all operations and output are forecast as far as ahead  as possible and the actual results, when known are compared with the budget estimates. Thus the term budgetary control  is designed to evaluate the performance in terms of goals budgeted.

The first step in a revision process is to examine the current budget and compare the allocations with actual spending based on past results. Categories that repeatedly fall short and those that show repetitive surpluses should be re-evaluated and revised. For example, suppose a business works from an annual budget and has a recurrent surplus in funds allocated to raw materials. Suppose the same business repeatedly experiences a shortfall in shipping. During the budget revision process, the average surplus from raw materials could be re-allocated to shipping. However, areas within the business that experience a recurring deficient need to be analyzed to find out why a particular area of operations continually exceeds the budgeted allotment.

Long term Budgets. The budgets are prepared to show the long term planning of the organisation. This budget is prepared normally for a period of 5 to 10 years. Example : Capital expenditure budget, research and development, long term finances etc.

Budgets may be classified on the basis of:

(A) Functions;
(B) Conditions;
(C) Periods (time); and
(D) Activity levels (flexibility).

Budget relating to key factor is prepared first and all other budgets follow it. The key factor can be external or internal. the internal key factor can be sales,  material, labour, plant capacity or management. The external key factor may be government policy, market condition.

Budgetary Control is a technique of managerial control in which actual results are compared with budgetary standards. Budgeting is a forward planning. It serves basically as a tool for management control. Budgeting ensures planned use of all resources and funds available for a business.