8 - BU D GE T A R Y C ON T R OL: Definition

MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION
1. DEFINE THE TERM BUDGET.
8 . BU D GE T A R Y C ON T R OL
Definition:
Bu dge t is a financial and /or quantitative statement, prepared and appr ove d prior to a defined Period of time of the policy to be pursued during that period for the purp ose of attaining a given objective. It may inclu de incom e, expe nditur e and employment of capital.
Features:
1. 2. 3. 4. Financial Statement. Futuristic Goa l Oriented Components and/ or Quantitative
prepared and approved prior to a defined period of time. for the purp ose of attaining a given objective. Income, Expenditure and Employment of Capital. BUDGETING?
2. WHAT ARE THE OBJECTIVES OF BUDGETING/PERFORMANCE The objectives of Budgeting are
1. To encourage self study in all aspec ts of a Co mpany' s operations. 2. To get all membe rs of management to put their heads to the basic question of how t he business should be run, to make them of a coordinated team operating in uni son towa rds clearly defined obj ectiv es. 3. To promote the planning organization. 4. To force a definition and pro cess and provide a sense of direction and aims. to every member of the
crystalli zation of Company policies
5. To increase the effectiveness with which people and capital are employed. 6. To disclose areas of potential improvement in the Companys operations. economic environment for
7. To stimulate study of relationship of the Co mp any to its external improving the effectiveness of its direction.
8. To direc t and coordinate business activities and units to achieve stated targets of performance. 9. To facilitate the control process , by com pari ng actual results with plan, and provide feedback to the employees about their perform ance . 3. DEFINE THE TERM BUDGETARY CONTROL. WHAT ARE ITS SALIENT FEATURES? 1. Definition : Budgetary Co ntrol is defined as "the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous com parison of actual with bud geted results either to secure by individual action the objec tive of that policy or to provide a base for its revision. 2. Salient features: a. Objectives: Determinin g the objectiv es to be achieved, over the budget period, and the policy (ies) that might be adopted for the achievement of these ends. b. Activities: Determinin g the variety of activities that should be undertaken for achievement the objectives. c. of
Plans: Drawing up a plan or a sche me of opera tion in res pect of each cla ss of activity, in physical a well as monetary terms for the full budge t period and its parts.
d. Performance Evaluation: Laying out a system of compari son of actual perform ance by each person sec tion or department with the releva nt budget and dete rminati on of causes for the disc repancies, if any. e. Control Action: Ensuring that when the plans are not achieved, corrective action are taken and when cor rective actions are not possible, ensuring that the plans are revise d and objectiv e achieved
Budgetary Control____
___
_8.1
MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION

4. WHAT ARE THE OBJECTIVES OF BUDGETARY CONTROL SYSTEM? The objectives of a Budgetary Control System are 1. Definition of Goals: Portraying with precision, the overall aims of the business and dete rmini ng targ ets of performance for each sec tion or department of the business. 2. Defining Responsibilities: Laying down the responsibiliti es of each individual knows what is expected of him and how he will be judge d. so that eve ryon e
3. Basis for Performance Evaluation: Providing basis for the compari son of actual performan ce with the predetermined targ ets and investigation of deviation, if any, of actu al perform ance and expenses from the budgeted figures. It helps to take timely corr ective measures. 4. Optimum use of Resources: Ensuring the best use of all available res ourc es to maximize profit or production, subject to the limiting factors. 5. Co ordination: Coordinating the various activities of the business and centralizing control, but also makin g a facility for the Management to decentralize resp onsibility and delegate authority. 6. Planned action: Engendering a spirit of care ful forethought, asses sment of what is possible and an attempt at it. It leads to dynamism without recklessness . It also helps to draw up long ran ge plan s with a fair measure of accuracy. 7. Basis for policy: Providing a basis for revision of current and futu re policies. 5. WHAT ARE THE DISADVANTAGES/LIMITATIONS OF THE BUDGETARY CONTROL SYSTEM?
1. Estimates: Bu dge ts may or may not be true, as they are base d on estimates . The ass umptions about futu re events may or may not actually happen . 2. Rigidity: Budgets are considered as rigid document. Too mu ch emphas is on budgets may affect daytod ay operations and ignores the dynamic state of organizational fun ctioning. 3. False Sense of Security: Mere budgeting canno t lead to profitability. Budgets cannot be executed automatically. It may create a false sense of security that everything has bee n taken care of in the budgets. 4. Lack of coordination: Staff cooperation is usually not ava ilable durin g Budge tar y Co ntrol exercise. and imp lement ation of the system may be expensive.
5. Time and Cost: The introduction
6. WHAT ARE THE DIFFERENT TYPES OF BUDGETS? DISTINGUISH BETWEEN FIXED AND FLEXIBLE BUDGETS. Budgets may be classified on the following base s 1. TimePeriod 2. Conditions 3. Capacity 4. Coverage
a. Longterm Budget & b. Short term Budget a.
b. Basic Budget and c. Current Budget a.
b. Fixed Bu dge t and c. Flexible Budget a.
b. Functional Bud get and c. Maste r Budget
1. BASED ON TIME PERIOD: Long Term Budget Short Term Budget
___
_8.2
IMAGINATION a. Budgets which are prepared for periods longe r than a year are called Long Term Budgets. b. Such Bud gets are helpful in business forecasting and forward plannin g. c. Examples: Capital Expenditure Bu dge t and R&D Budget.
MASTER MINDS - QUALITY EDUCATION BEYOND YOUR

a. Budgets which are prepared for periods less than a yea r are known as Short Term Budgets. b. Such Bud gets are prepared in cases where a spe cifi c action has to be immediately taken to brin g any variation und er control. c. Example: Cash Budget.
___
_8.3

8 - BU D GE T A R Y C ON T R OL: Definition

Uploaded by

Copyright:

Available Formats

8 - BU D GE T A R Y C ON T R OL: Definition

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

8 - BU D GE T A R Y C ON T R OL: Definition

Uploaded by

Copyright:

Available Formats

MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION

1. DEFINE THE TERM BUDGET.

2. WHAT ARE THE OBJECTIVES OF BUDGETING/PERFORMANCE The objectives of Budgeting are

crystalli zation of Company policies

MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION

5. Time and Cost: The introduction

a. Longterm Budget & b. Short term Budget a.

b. Basic Budget and c. Current Budget a.

b. Fixed Bu dge t and c. Flexible Budget a.

b. Functional Bud get and c. Maste r Budget

1. BASED ON TIME PERIOD: Long Term Budget Short Term Budget

MASTER MINDS - QUALITY EDUCATION BEYOND YOUR

You might also like