Anatomy of Budget and Budgetary Control
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ANATOMY OF BUDGET AND BUDGETARY CONTROL IN
Transcript of Anatomy of Budget and Budgetary Control
ANATOMY OF
BUDGET AND
BUDGETARY
CONTROL IN
BUSINESS
ORGANISATION.
(a case study of Delatre Bazon Nig. Ltd.)
A PROJECT WORK SUBMITTED TO THE
SCHOOL OF BUSINESS STUDIES, DEPARTMENT OF
BUSINESS ADMINISTRATION.
IN PARTIAL FULFILLMENT OF THE REQUIREMENT
FOR THE AWARD NATIONAL DIPLOMA
IN BUSINESS ADMINISTRATION.
NOVEMBER 2009
2
CERTIFICATION PAGE
We certify this work was carried out by
…………………………….. in the School of Business Studies,
department of Business Administration, Akwa Ibom State
Polytechnic as meeting the requirement for the award of
ordinary diploma in Business Administration.
__________________ ________________
(Supervisor) Centre Co-ordinator
Date __________ Date __________
DEDICATION PAGE3
I dedicate this project to Almighty God for his divine
guidance, grace and mercy throughout my academic pursuit.
May all Glory, Honour, Majesty and power be ascribed unto
His Holy Name in Jesus Name.
ACKNOWLEDGEMENT
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I thereby which to Acknowledged the following people that has made my
dream and purpose in life to come through. First of all, thanks to Almighty
God who gave me power and wisdom, and the grace to be educated and to
MR ___________________________________________ and my dear
mother Mrs. ___________________________________________ who is an
encouragement to my life and my brothers and Sisters ________________
_____________________________________________________________
______ for their love towards me in prayer, also my supervisor who has
been a great help to me. _______________________________________
and my lovely Register of warri center MRS Stella Oyabugbe and my Co-
odinator of warri Centre Mrs Alex Obinaka for her love towards me and
my father
______________________________________________________ whose
Vision for my life was to be great and useful in life and those many love
ones too numerous to name. My prayer to God Almighty is that HE should
bless you all richly in JESUS NAME.
ABSTRACT
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The researcher viewed a budget as a plan expressed in quantitative,
usually monetary term, covering a specific period of time, usually one
year. While a budgetary control is a methodical control of an
organization's operations through establishment of standards and
targets regarding income and expenditure, and a continuous
monitoring and adjustment of performance against them. In this
research work, the researcher will be considering …
An indication and explanation of the importance of budget and budgetary control in an organisation as a key marketing control technique
· An overview of the advantages and disadvantages of budgeting
· An introduction to the methods for preparing budgets
· An appreciation of the uses of budgets
The role budget and budgetary control in an organization.
This research work is organized in five chapters as follows:
1. Introduction
2. Review of Related Literature
3. Research Methods and Producers
4. Data presentation and Analysis and
5. Summary, Findings, Conclusion and Recommendation.
CHAPTER ONE
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INTRODUCTION
1.0 THE BACKGROUND OF THE STUDY
Of all business activities, budgeting is one of the most important and,
therefore, requires detailed attention. The research work focuses on
the concept of responsibility centres, and the advantages and
disadvantages of budget and budgetary control. It then goes on to deal
on the detail of budget construction and the use to which budgets can
be put. Like all management tools, the researcher highlights the need
for detailed information, if the technique is to be used to its fullest
advantage.
Budgets can take many forms and serve many functions. Budgets can
provide the basis for detailed sales targets, staffing plans, inventory
production, cash investment/borrowing, capital expenditures (for plant
assets, etc.), and on and on. Budgets provide benchmarks against
which to compare actual results and develop corrective measures.
Budgets give managers "preapproval" for execution of spending plans.
Budgets allow managers to provide forward looking guidance to
investors and creditors. Budgets are necessary to convince banks and
other lenders to extend credit.
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Budgetary control is the process of ascertaining several budgeted
figures for the future of a business enterprise and then making
comparison of these budgeted figures with the actual results for
finding out discrepancies, if any. The comparison of budgeted and
actual figures will allow the management to take curative actions at a
proper time.
Budgetary control can be defined as, “A means of achieving the
financial control of an entity whereby the actual results for a defined
period of time are compared with the budgeted results, any differences
(or variances) being noted, and some corrective action taken to bring
the actual activities back into line with the budgeted ones if such
variances need to be dealt with.”
1.1 STATEMENT OF RESEARCH PROBLEM
In looking at the anatomy of budget and budgetary control in
business organization, some of the questions easily come to
mind are:
1. Can budgeting brings about efficiency and improvement in the
working of the organization.
2. Is it a way of communicating the plans to various units of the
organization. By establishing the divisional, departmental, sectional
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budgets, exact responsibilities are assigned. It thus minimizes the
possibilities of buck passing if the budget figures are not met.
3. Is it a way of motivating managers to achieve the goals set for the
units.
4. Does it serve as a benchmark for controlling on-going operations.
5. Does it help in developing a team spirit where participation in
budgeting is encouraged?
6. Can it help in reducing wastage and losses by revealing them in
time for corrective action.
7. Can it serve as a basis for evaluating the performance of managers.
8. Can it serve as a means of educating the managers.
9. Can budgetary control enables remedial action to be taken as variances emerge.
10 Can it motivates employees by participating in the setting of budgets.
11. Can it improve the allocation of scarce resources.
1.2 OBJECTIVES OF THE STUDY
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The objective of management accounting is to help managers achieve
the missions and strategies established for their enterprises. It is a
branch of accounting that provides financial and other information to
managers. A key role for management accountants is to establish the
control systems used to achieve organizational goals and minimize
risks. One of the most important of these is budgetary control, a
powerful tool that encourages planning, sets milestones, evaluates
performance and suggests paths for improvement. Management
accountants also develop information systems that communicate
strategic and operational priorities to managerial decision makers.
The budgetary control is a continuous process that helps in planning,
coordination and controlling of business decisions. A budget is a means and
budgetary control is the end-result. The budgetary control system assists an
organization in setting up the goals and efforts are made for its
achievements. It enables economies in the enterprise. The main objectives of
budgetary control are as follows:
- It is essential for planning, controlling and also acts as an instrument of
coordination.
- It coordinates the actions of various departments.
- Budgetary control helps in eliminating wastes and raises the profitability
position of a business enterprise.
- It makes a prediction about capital expenditure for future.
- It helps in amending deviations from the established standards.
- It centralizes the control system.
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- Budgetary control operates various cost centres and departments with
efficiency and economy.
- the utility and functioning of a budget control process;
- to design of the budgetary control system as a function of the organizational
strategy;
- to show the use of budgets to manage revenues, costs and profits;
- to show the relationship between management control and organizational
structure;
- the organization of financial information in a comprehensible, flexible,
accessible and useful form to empower decision making;
- the evaluation of performance for different administrative units within the
organizational structure;
- the development and use of non financial performance measures.
1.3 SIGNIFICANCE OF THE STUDY
This study is significant because it will produce data on the anatomy of
budget and budgetary control that will be useful to:
1. federal ministry of finance
2. State ministry of finance
3. national union of local government employees
4. state civil service commission
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5. federal civil service commission .
6. managers and top executives in organized private sector
7. students carry a research work in this same issue.
1.4 HYPOTHESESIt is a conjectural statement of the relationships
between two or more variables. It is testable, tentative
problem explanation of the relationship between two or
more variables that create a state of affairs or
phenomenon.
E,C, Osuola (1986 page 48) said hypothesis should
always be in declarative sentence form, and they
should relate to them generally or specially variable to
variables.
HYPOTHESIS THUS:
1. Explain observed events in a systematic manner
2. Predict the outcome of events and relationships
3. Systematically summarized existing knowledge.
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In essence, there exist NULL HYPOTHESIS set up only to
nullify the research hypothesis and the ALTERNATIVE
HYPOTHESIS for the purpose of the study. For the
efficiency of the study, the hypothesis is as follows:
NULL HYPOTHESIS (HO)
1. Budgetary control do not operate in various cost centres and
departments with efficiency and economy.
2.` Budgetary control does not help in eliminating wastes and raises
the profitability position of a business enterprise.
ALTERNATIVE HYPOTHESIS
1. Does Budgetary control operates in various cost centers and
departments with efficiency and economy?.
2. Does Budgetary control helps in eliminating wastes and raises the profitability position of a business enterprise?.
1.5 LIMITATIONS OF THE STUDYA research work of this nature cannot come to an end
without limitation. The researcher encountered
numerous problems which affected the smooth running
of the work. These problems includes, difficulty in
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procuring materials for the project, time factor and
financial constraints.
Material Procurement
There was a lot constraints as to getting information
and materials for the job. The researcher made series
of consultations and visit to most renowned institutions
to acquire the needed information. Most materials used
were very difficult to come by, as there is no library
within the town.
Time Constraints
Combining academic work with job is no doubt a
thought provoking issue, as it has to do with time.
Actually, a lot of time was wasted as the researcher
visited the organizations and individuals together with
government agencies to obtain valuable information for
the project.
Financial Constraints
The researcher would have obtained more information
than what is obtainable here but due to lack of money
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to visit some of the firms and government agencies
located a bit farther from the researcher place of
resident.
1.6 THE SCOPE OF THE STUDY
This research work describes the controls necessary to ensure that
public/private funds are safeguarded, with accountability maintained at all
stages. it touches various areas like……….
Personal budget
corporate budget
government budget
budgetary control systems
budget holder responsibilities
management checks
Definition of related terms and so on
CHAPTER TWO
LITERATURE REVIEW
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2.0 INTRODUCTION
In a business organization, a budget represents an estimate of future
costs and revenues. Budgets may be divided into two basic classes:
Capital Budgets and Operating Budgets.
Capital budgets are directed towards proposed expenditures for new
projects and often require special financing. The operating budgets are
directed towards achieving short-term operational goals of the
organization, for instance, production or profit goals in a business firm.
Operating budgets may be sub-divided into various departmental of
functional budgets. No system of planning can be successful without
having an effective and efficient system of control. Budgeting is closely
connected with control. The exercise of control in the organization with
the help of budgets is known as budgetary control. The process of
budgetary control includes:
1. Preparation of various budgets.
2. Continuous comparison of actual performance with budgetary
performance.
3. Revision of budgets in the light of changed circumstances.
A system of budgetary control should not become rigid. There should
be enough scope of flexibility to provide for individual initiative and
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drive. Budgetary control is an important device for making the
organization. More efficient on all fronts. It is an important tool for
controlling costs and achieving the overall objectives.
2.1 MASTER BUDGET EXPLAINED
Master budget for a big organization summarizes the goals of all
subunits of an organization - either business divisions if the company is
organized along divisional lines or managerial functions if the company
is organized along functional lines.
The master budget consists of expected or projected income
statement, balance sheet, and a cash flow statement, along with
supporting schedules.
2.2 IMPERATIVE FOR BUDGETING
The advocates of budgeting state that the process of preparing
budget forces executives to become better managers. Budgeting
schedule of a company puts planning where it belongs - in the
forefront of every manager's mind. It also forces him to review his
performance in the last period and identify good practices that
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enhanced performance and issues that contributed negatively to
performance.
Budgetary control at department level is encouraging department
level personnel to plan their operations for the forth coming period.
Both outputs and inputs are to be planned. If possible outputs and
inputs are converted into revenues and costs.
The accounting system of the company will prepare the actual
revenues and costs generated at the end of the period as well as
during the period. The department managers have to responsibility to
carry out the day to day activities to achieve the best possible results
with their plan/budget as the guiding document. Budgets can be made
flexible so that cost estimates are in relation to the output produced.
Variance analysis can be done to pin point the variables that changed
during the period and their effect on actual results.
Budgetary control system facilitates participation of department
managers as well as senior level managers in explicitly planning for the
future. The plan can be optimized with various optimization
techniques.
These techniques include linear programming (for product mix
problems), transportation (for planning transport of finished goods)
and assignment (assigning machines for jobs or operators for jobs) and
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other operations research techniques. A formal budgeting system can
question the department managers on whether they have applied the
optimization techniques or not and where necessary advise them to
use those techniques and provide specialist support in cases where
necessary.
2.3 BUSINESS START-UP BUDGET
The process of calculating the costs of starting a small business
begins with a list of all necessary purchases including tangible
assets (for example, equipment, inventory) and services (for
example, remodeling, insurance), working capital, sources and
collateral. The budget should contain a narrative explaining how
you decided on the amount of this reserve and a description of the
expected financial results of business activities. The assets should
be valued with each and every cost.
2.4 CORPORATE BUDGET
The budget of a company is often compiled annually, but may not
be. A finished budget, usually requiring considerable effort, is a
plan for the short-term future, typically one year (see Budget Year).
While traditionally the Finance department compiles the company's
budget, modern software allows hundreds or even thousands of
people in various departments (operations, human resources, IT
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etc) to list their expected revenues and expenses in the final
budget.
If the actual figures delivered through the budget period come
close to the budget, this suggests that the managers understand
their business and have been successfully driving it in the intended
direction. On the other hand, if the actuals diverge wildly from the
budget, this sends an 'out of control' signal, and the share price
could suffer as a result.
2.5 EVENT MANAGEMENT BUDGET
A budget is a fundamental tool for an event director to predict with
reasonable accuracy whether the event will result in a profit, a loss
or will break-even. A budget can also be used as a pricing tool.
2.6 GOVERNMENT BUDGET
The budget of a government is a summary or plan of the intended
revenues and expenditures of that government. The United States
federal budget is prepared by the Office of Management and
Budget, and submitted to Congress for consideration. Invariably,
Congress makes many and substantial changes.
2.7 PERSONAL OR FAMILY BUDGET
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In a personal or family budget all sources of income (inflows) are
identified and expenses (outflows) are planned with the intent of
matching outflows to inflows (making ends meet.) In consumer
theory, the equation restricting an individual or household to spend
no more than its total resources is often called the budget
constraint..
2.8 WHY SHOULD WE BUDGET?
Controlling your financial affairs requires a budget. For many people,
the word "budget" has a negative connotation. Instead of thinking of a
budget as financial handcuffs, think of it as a means to achieve
financial success.
Whether you make thousands of naira a year or hundreds of thousands
of naira a year, a budget is the first and most important step you can
take towards putting your money to work for you instead of being
controlled by it and forever falling short of your financial goals.
Budgeting and tracking your expenses gives you a strong sense of
where your money goes and can help you reach your financial goals.
Since financial matters are one of the leading causes of marital discord
and divorce, getting a handle on your spending, implementing a
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budget, and saving for the future can also have positive effects on your
relationship with your spouse or partner.
2.9 BUDGET TYPES
1. Sales budget: The sales budget is an estimate of future sales,
often broken down into both units and dollars. It is used to
create company sales goals.
2. Production budget: Product oriented companies create a
production budget which estimates the number of units that must
be manufactured to meet the sales goals. The production budget
also estimates the various costs involved with manufacturing those
units, including labor and material.
3 Cash Flow/Cash budget: The cash flow budget is a prediction of
future cash receipts and expenditures for a particular time period.
It usually covers a period in the short term future. The cash flow
budget helps the business determine when income will be sufficient
to cover expenses and when the company will need to seek outside
financing.
4 Marketing budget: The marketing budget is an estimate of the
funds needed for promotion, advertising, and public relations in
order to market the product or service.
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5 Project budget: The project budget is a prediction of the costs
associated with a particular company project. These costs include
labor, materials, and other related expenses. The project budget is
often broken down into specific tasks, with task budgets assigned
to each.
6 Revenue budget: The Revenue Budget consists of revenue
receipts of government and the expenditure met from these
revenues. Tax revenues are made up of taxes and other duties that
the government levies.
7 Expenditure budget: A budget type which include of spending
data items.
2.10 ADVANTAGES OF BUDGETING AND BUDGETARY CONTROL
There are a number of advantages to budgeting and budgetary
control:
Compels management to think about the future, which is probably
the most important feature of a budgetary planning and control
system. Forces management to look ahead, to set out detailed plans
for achieving the targets for each department, operation and (ideally)
each manager, to anticipate and give the organisation purpose and
direction.
Promotes coordination and communication.
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Clearly defines areas of responsibility. Requires managers of budget
centres to be made responsible for the achievement of budget targets
for the operations under their personal control.
Provides a basis for performance appraisal (variance analysis). A
budget is basically a yardstick against which actual performance is
measured and assessed. Control is provided by comparisons of actual
results against budget plan. Departures from budget can then be
investigated and the reasons for the differences can be divided into
controllable and non-controllable factors.
Enables remedial action to be taken as variances emerge.
Motivates employees by participating in the setting of budgets.
Improves the allocation of scarce resources.
Economises management time by using the management by
exception principle.
2.11 PROBLEMS IN BUDGETING
Whilst budgets may be an essential part of any marketing activity they
do have a number of disadvantages, particularly in perception terms.
Budgets can be seen as pressure devices imposed by management,
thus resulting in:
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a) bad labour relations
b) inaccurate record-keeping.
Departmental conflict arises due to:
a) disputes over resource allocation
b) departments blaming each other if targets are not attained.
It is difficult to reconcile personal/individual and corporate goals.
Waste may arise as managers adopt the view, "we had better spend
it or we will lose it". This is often coupled with "empire building" in
order to enhance the prestige of a department.
Responsibility versus controlling, i.e. some costs are under the
influence of more than one person, e.g. power costs.
Managers may overestimate costs so that they will not be blamed in
the future should they overspend.
2.12 CHARACTERISTICS OF A BUDGET
A good budget is characterised by the following:
Participation: involve as many people as possible in drawing up a
budget.
Comprehensiveness: embrace the whole organisation.
Standards: base it on established standards of performance.
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Flexibility: allow for changing circumstances.
Feedback: constantly monitor performance.
Analysis of costs and revenues: this can be done on the basis of
product lines, departments or cost centres.
2.13 BUDGET ORGANISATION AND ADMINISTRATION:
In organising and administering a budget system the following
characteristics may apply:
a) Budget centres: Units responsible for the preparation of budgets. A
budget centre may encompass several cost centres.
b) Budget committee: This may consist of senior members of the
organisation, e.g. departmental heads and executives (with the
managing director as chairman). Every part of the organisation should
be represented on the committee, so there should be a representative
from sales, production, marketing and so on. Functions of the budget
committee include:
Coordination of the preparation of budgets, including the issue of a
manual
Issuing of timetables for preparation of budgets
Provision of information to assist budget preparations
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Comparison of actual results with budget and investigation of
variances.
c) Budget Officer: Controls the budget administration The job involves:
liaising between the budget committee and managers responsible for
budget preparation
dealing with budgetary control problems
ensuring that deadlines are met
educating people about budgetary control.
d) Budget manual:
This document:
charts the organisation
details the budget procedures
contains account codes for items of expenditure and revenue
timetables the process
clearly defines the responsibility of persons involved in the budgeting
system.
2.14 BUDGET PREPARATION
Firstly, determine the principal budget factor. This is also known as the
key budget factor or limiting budget factor and is the factor which will
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limit the activities of an undertaking. This limits output, e.g. sales,
material or labour.
a) Sales budget: this involves a realistic sales forecast. This is prepared
in units of each product and also in sales value. Methods of sales
forecasting include:
sales force opinions
market research
statistical methods (correlation analysis and examination of trends)
mathematical models.
In using these techniques consider:
company's pricing policy
general economic and political conditions
changes in the population
competition
consumers' income and tastes
advertising and other sales promotion techniques
after sales service
credit terms offered.
b) Production budget: expressed in quantitative terms only and is
geared to the sales budget. The production manager's duties include:
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analysis of plant utilisation
work-in-progress budgets.
If requirements exceed capacity he may:
subcontract
plan for overtime
introduce shift work
hire or buy additional machinery
The materials purchases budget's both quantitative and financial.
c) Raw materials and purchasing budget:
The materials usage budget is in quantities.
The materials purchases budget is both quantitative and financial.
Factors influencing a) and b) include:
production requirements
planning stock levels
storage space
trends of material prices.
d) Labour budget: is both quantitative and financial. This is influenced
by:
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production requirements
man-hours available
grades of labour required
wage rates (union agreements)
the need for incentives.
e) Cash budget: a cash plan for a defined period of time. It summarises
monthly receipts and payments. Hence, it highlights monthly surpluses
and deficits of actual cash. Its main uses are:
to maintain control over a firm's cash requirements, e.g. stock and
debtors
to enable a firm to take precautionary measures and arrange in
advance for investment and loan facilities whenever cash surpluses or
deficits arises
to show the feasibility of management's plans in cash terms
to illustrate the financial impact of changes in management policy,
e.g. change of credit terms offered to customers.
Receipts of cash may come from one of the following:
cash sales
payments by debtors
the sale of fixed assets
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the issue of new shares
the receipt of interest and dividends from investments.
Payments of cash may be for one or more of the following:
purchase of stocks
payments of wages or other expenses
purchase of capital items
payment of interest, dividends or taxation.
Steps in preparing a cash budget
i) Step 1: set out a pro forma cash budget month by month. Below is a suggested layout.
Month 1 Month 2 Month 3
N N N
Cash receipts
Receipts from debtors
Sales of capital items
Loans received
Proceeds from share issues
Any other cash receipts
Cash payments
Payments to creditors
Wages and salaries
Loan repayments
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Capital expenditure
Taxation
Dividends
Any other cash expenditure
Receipts less payments
Opening cash balance b/f W X Y
Closing cash balance c/f X Y Z
ii) Step 2: sort out cash receipts from debtors
iii) Step 3: other income
iv) Step 4: sort out cash payments to suppliers
v) Step 5: establish other cash payments in the month
Figure 4.1 shows the composition of a master budget analysis.
Figure 2.1 Composition of a master budget
OPERATING BUDGET FINANCIAL BUDGET
consists of:- consists of
Budget P/L acc: get: Cash budget
Production budget Balance sheet
Materials budget Funds statement
Labour budget
Admin. budget
Stocks budget
f) Other budgets that could be prepared:
These include budgets for:
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administration research and development selling and distribution expenses capital expenditures working capital (debtors and creditors).
An example
A sugar cane farm in owned and operated by Delatre Bazon Nig. Ltd. devised an operating budget as follows:
Cultivation Irrigation Field maintenance Harvesting Transportation.
With each operation, there will be costs for labour, materials and machinery usage. Therefore, for e.g. harvesting, these may include four resources, namely:
Labour: -cutting-sundry
Tractors Cane trailers Implements and sundries.
Having identified cost centres, the next step will be to make a quantitative calculation of
the resources to be used, and to further break this down to shorter periods, say, one
month or three months. The length of period chosen is important in that the shorter it is,
the greater the control that can be exercised by the budget but the greater the expense
in preparation of the budget and reporting of any variances.
The quantitative budget for harvesting may be calculated as shown in figure 2.2.
Figure 4.2 Quantitative harvesting budget
Harvesting 1st quarter 2nd quarter 3rd quarter 4th quarter
Labour
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Cutting nil 9,000 tonnes 16,000 tonnes 10,000 tonnes
Sundry nil 300 man days 450 man days 450 man days
Tractors nil 630 hours 1,100 hours 700 hours
Cane trailers nil 9,000 tonnes 16,000 tonnes 10,000 tonnes
Imp, & sundries nil 9,000 tonnes 16,000 tonnes 10,000 tonnes
Each item is measured in different quantitative units - tonnes of cane, man days etc.-and depends on individual judgement of which is the best unit to use.
Once the budget in quantitative terms has been prepared, unit costs can then be allocated to the individual items to arrive at a budget for harvesting in financial terms as shown in table 2.2.
Charge out costs
In table 2.2 tractors have a unit cost of N7.50 per hour - machines like tractors have a
whole range of costs like fuel and oil, repairs and maintenance, driver, licence, road tax
and insurance and depreciation. Some of the costs are fixed, e.g. depreciation and
insurance, whereas some vary directly with use of the tractor, e.g. fuel and oil. Other
costs such as repairs are unpredictable and may be very high or low - an estimated
figure based on past experience.
Figure 2.3 Harvesting cost budget
Item harvesting Unit cost 1st quarter 2nd quarter 3rd quarter 4th quarter Total
Labour
Cutting N0.75 per tonne - 6,750 12,000 7,500 26,250
Sundry N2.50 per day - 750 1,125 1,125 3,000
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Tractors N7.50 per hour - 4,725 8,250 5,250 18,225
Cane Trailers N0.15 per tonne - 1,350 2,400 1,500 5,250
Imp. & sundries N0.25 per tonne - 2,250 4,000 2,500 8,750
- N15,825 N27,775 N17,875 N61,475
So, overall operating cost of the tractor for the year may be budgeted as shown in figure 2.4.
If the tractor is used for more than 1,000 hours then there will be an over-recovery on its operational costs and if used for less than 1,000 hours there will be under-recovery, i.e. in the first instance making an internal 'profit' and in the second a 'loss'.
Figure 2.4 Tractor costs
Unit rate Cost per annum (1,000 hours)
(N) (N)
Fixed costs Depreciation 2,000.00 2,000.00
Licence and insurance 200.00 200.00
Driver 100.00 per month 1,200.00
Repairs 600.00 per annum 600.00
Variable costs Fuel and oil 2.00 per hour 2,000.00
Maintenance 3.00 per 200 hours 1,500.00
7,500.00
No. of hours used 1,000.00
Cost per hour 7.50
Master budget
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The master budget for the sugar cane farm may be as shown in figure 2.5. The budget represents an overall objective for the farm for the whole year ahead, expressed in financial terms.
Table 2.5 Operating budget for sugar cane farm 19X4
1st quarter 2nd quarter 3rd quarter 4th quarter Total $
Revenue from cane 130,000 250,000 120,000 500,000
Less: Costs
Cultivation 37,261 48,268 42,368 55,416 183,313
Irrigation 7,278 15,297 18,473 11,329 52,377
Field maintenance 4,826 12,923 15,991 7,262 41,002
Harvesting - 15,825 27,775 17,875 61,475
Transportation - 14,100 24,750 15,750 54,600
49,365 106,413 129,357 107,632 392,767
Add: Opening valuation 85,800 135,165 112,240 94,260 85,800
135,165 241,578 241,597 201,892 478,567
Less: Closing valuation 135,165 112,240 94,260 90,290 90,290
Net crop cost - 129,338 147,337 111,602 388,277
Gross surplus - 66,200 102,663 8,398 111,723
Less: Overheads 5,876 7,361 7,486 5,321 26,044
Net profitless) (5,876) (6,699) 95,177 3,077 85,679
Once the operating budget has been prepared, two further budgets can be done, namely:
i. Balance sheet at the end of the year.
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ii. Cash flow budget which shows the amount of cash necessary to support the operating
budget. It is of great importance that the business has sufficient funds to support the
planned operational budget.
Reporting back
During the year the management accountant will prepare statements, as quickly as
possible after each operating period, in our example, each quarter, setting out the actual
operating costs against the budgeted costs. This statement will calculate the difference
between the 'budgeted' and the 'actual' cost, which is called the 'variance'.
There are many ways in which management accounts can be prepared. To continue
with our example of harvesting on the sugar cane farm, management accounts at the
end of the third quarter can be presented as shown in figure 2.6.
Figure 2.6 Management accounts - actual costs against budget costs Management accounts for sugar cane farm 3rd quarter 20XX
Item Harvesting 3rd quarter Year to date
Actual Budget Variance Actual Budget Variance
Labour
- Cutting 12,200 12,000 (200) 19,060 18,750 (310)
- Sundry 742 1,125 383 1,584 1,875 291
Tractors 9,375 8,250 (1,125) 13,500 12,975 (525)
Cane trailers 1,678 2,400 722 2,505 3,750 1,245
Imp & sundries 4,270 4,000 (270) 6,513 6,250 (263)
28,265 27,775 (490) 43,162 43,600 438
37
Here, actual harvesting costs for the 3rd quarter are N28,265 against a budget of
N27,775 indicating an increase of N490 whilst the cumulative figure for the year
to date shows an overall saving of N438. It appears that actual costs are less
than budgeted costs, so the harvesting operations are proceeding within the
budget set and satisfactory. However, a further look may reveal that this may not
be the case. The budget was based on a cane tonnage cut of 16,000 tonnes in
the 3rd quarter and a cumulative tonnage of 25,000. If these tonnages have been
achieved then the statement will be satisfactory. If the actual production was
much higher than budgeted then these costs represent a very considerable
saving, even though only a marginal saving is shown by the variance. Similarly, if
the actual tonnage was significantly less than budgeted, then what is indicated as
a marginal saving in the variance may, in fact, be a considerable overspending.
Price and quantity variances
Just to state that there is a variance on a particular item of expenditure does not
really mean a lot. Most costs are composed of two elements - the quantity used
and the price per unit. A variance between the actual cost of an item and its
budgeted cost may be due to one or both of these factors. Apparent similarity
between budgeted and actual costs may hide significant compensating variances
between price and usage.
For example, say it is budgeted to take 300 man days at N3.00 per man day -
giving a total budgeted cost of N900.00. The actual cost on completion was
N875.00, showing a saving of N25.00. Further investigations may reveal that the
38
job took 250 man days at a daily rate of N.50 - a favourable usage variance but a
very unfavourable price variance. Management may therefore need to investigate
some significant variances revealed by further analysis, which a comparison of
the total costs would not have revealed. Price and usage variances for major
items of expense are discussed below.
Labour
The difference between actual labour costs and budgeted or standard labour
costs is known as direct wages variance. This variance may arise due to a
difference in the amount of labour used or the price per unit of labour, i.e. the
wage rate. The direct wages variance can be split into:
i) Wage rate variance: the wage rate was higher or lower than budgeted, e.g.
using more unskilled labour, or working overtime at a higher rate.
ii) Labour efficiency variance: arises when the actual time spent on a particular
job is higher or lower than the standard labour hours specified, e.g. breakdown of
a machine.
Materials
The variance for materials cost could also be split into price and usage elements:
i) Material price variance: arises when the actual unit price is greater or lower
than budgeted. Could be due to inflation, discounts, alternative suppliers etc.
39
ii) Material quantity variance: arises when the actual amount of material used is
greater or lower than the amount specified in the budget, e.g. a budgeted
fertiliser at 350 kg per hectare may be increased or decreased when the actual
fertiliser is applied, giving rise to a usage variance.
Overheads
Again, overhead variance can be split into:
i) Overhead volume variance: where overheads are taken into the cost centres, a
production higher or lower than budgeted will cause an over-or under-absorption
of overheads.
ii) Overhead expenditure variance: where the actual overhead expenditure is
higher or lower than that budgeted for the level of output actually produced.
2.15 ZERO BASE BUDGETING (ZBB)
After a budgeting system has been in operation for some time, there is
a tendency for next year's budget to be justified by reference to the
actual levels being achieved at present. In fact this is part of the
financial analysis discussed so far, but the proper analysis process
takes into account all the changes which should affect the future
activities of the company. Even using such an analytical base, some
businesses find that historical comparisons, and particularly the
40
current level of constraints on resources, can inhibit really innovative
changes in budgets. This can cause a severe handicap for the business
because the budget should be the first year of the long range plan.
Thus, if changes are not started in the budget period, it will be difficult
for the business to make the progress necessary to achieve longer
term objectives.
One way of breaking out of this cyclical budgeting problem is to go
back to basics and develop the budget from an assumption of no
existing resources (that is, a zero base). This means all resources will
have to be justified and the chosen way of achieving any specified
objectives will have to be compared with the alternatives. For example,
in the sales area, the current existing field sales force will be ignored,
and the optimum way of achieving the sales objectives in that
particular market for the particular goods or services should be
developed. This might not include any field sales force, or a different-
sized team, and the company then has to plan how to implement this
new strategy.
The obvious problem of this zero-base budgeting process is the
massive amount of managerial time needed to carry out the exercise.
Hence, some companies carry out the full process every five years, but
in that year the business can almost grind to a halt. Thus, an
alternative way is to look in depth at one area of the business each
41
year on a rolling basis, so that each sector does a zero base budget
every five years or so.
2.16 BUDGET PROCESSES AND HUMAN BEHAVIOR
BUDGET COMMITTEE: A comprehensive budget usually involves all segments
of a business. As a result, representatives from each unit are typically included
throughout the process. The process is likely to be spearheaded by a budget
committee consisting of senior level personnel. Such individuals bring valuable
insights about all aspects of sales, production, and other phases of operations.
Not only are these individuals ideally positioned to provide the best possible
information relative to their respective units, they also need to be present to
effectively advocate for the opportunities and resource needs within their unit.
The budget committee's work is not necessarily complete once the budget
document is prepared and approved. A remaining responsibility for many
committees is to continually monitor progress against the budget, and potentially
recommend mid-course corrections. The budget committee's decisions can
greatly impact the fate of specific business units, in terms of resources made
available as well as setting the benchmarks that will be used to assess
performance. As a result, members of the budget committee will generally take
their task very seriously.
BUDGET CONSTRUCTION: The budget construction process will normally
follow the organizational chart. Each component of the entity will be involved in
preparing budget information relative to its unit. This information is successively
42
compiled together as it is passed up through the organization until an overall
budget plan is achieved. But, beyond the data compilation, there is critical
difference in how budgets are actually developed among different organizations.
Some entities follow a top-down, or mandated approach. Others utilize a bottom-
up, or participative philosophy.
43
MANDATED BUDGETS: Some entities will follow a top-down
mandated approach to budgeting. These budgets will begin with
upper level management establishing parameters under which the
budget is to be prepared. These parameters can be general or
specific. They can cover sales goals, expenditure levels, guidelines
for compensation, and more. Lower-level personnel have very little
input in setting the overall goals of the organization. The upper-level
executives call the shots, and lower-level units are essentially
reduced to doing the basic budget calculations consistent with
directives. Mid-level executives may color the budget process by
refining the leadership directives as the budget information is passed
down through the organization.
44
One disadvantage of the top-down approach is that lower-level
managers may view the budget as a dictatorial standard.
Resentment can be fostered in such an environment. Further, such
budgets can sometimes provide ethical challenges, as lower-level
managers may find themselves put in a position of ever-reaching to
attain unrealistic targets for their units.
On the positive side, top-down budgets can set a tone for the
organization. They signal expected sales and production activity that
the organization is supposed to reach. Some of the most efficient and
successful organizations have a hallmark strategy of being “lean and
mean.” The budget is a most effective communication device in
getting employees to hear the message and perform accordingly.
45
PARTICIPATIVE BUDGETS: The bottom-up participative approach is driven by
involving lower-level employees in the budget development process. Top
management may initiate the budget process with general budget guidelines, but
it is the lower-level units that drive the development of budgets for their units.
These individual budgets are then grouped and regrouped to form a divisional
budget with mid-level executives adding their input along the way. Eventually top
management and the budget committee will receive the overall plan. As you
might suspect, the budget committee must then review the budget components
for consistency and coordination. This may require several iterations of passing
the budget back down the ladder for revision by lower units. Ultimately, a final
budget is reached.
The participative budget approach is viewed as self-imposed. As a result, it is
argued that it improves employee morale and job satisfaction. It fosters the
"team-based" management philosophy that has proven to be very effective for
modern organizations. Furthermore, the budget is prepared by those who have
the best knowledge of their own specific areas of operation. This should allow for
a more accurate budget; in any event, it certainly removes one of the primary
excuses that is used to explain why a particular budget was not met!
46
On the negative side of the equation, a bottom-up approach is generally more
time consuming and expensive to develop and administer. This occurs because
of the iterative process needed for its development and coordination. Another
potential shortcoming has to do with the fact that some managers may try to
"pad" their budget, giving them more room for mistakes and inefficiency. More
will be said about this problem shortly, but it is particularly problematic with a
highly participative approach.
BLENDED APPROACH: Theoretically the budget process can be portrayed as
top-down or bottom-up. But, the reality is that most budgets are prepared with a
blended approach where information is passed both ways.
ORGANIZATIONAL STRUCTURE CONSIDERATIONS: It is very important for
managers at all levels to understand how information is transformed as it passes
through an organization. Review the preceding graphics, this time noting how
the top-down arrows change from yellow to pink as they pass through the middle-
level leadership. Conversely, the arrows in the bottom-up approach morph from
green to pink as they pass through the middle-level managers. As budget
information is transferred up and down an organization, the “message” will
inevitably be influenced by the beliefs and preferences of the communicators.
There is always a chance that information can be so transformed as to lose its
original intent. Top management can lose touch with information originating on
the front line, and front-line employees may not always get a clear picture of the
goals and objectives originating with senior management.
47
FLATTENING THE ORGANIZATION CHART: There are staggering differences
in the organization charts of different entities. Business growth is a natural
incubator for expansion of the number of levels within an organization; as a
result, great care must be taken to preserve the efficiency and effectiveness of
growing entities. Sometimes the very attributes that contribute to growth can be
undone by the growth itself. The charts of some entities consume many pages
and involve potentially dozens of "levels." Other companies may have worked to
"flatten" their organizational chart to minimize the number of links in the chain of
command. While these endeavors are often seen as attempts to reduce the cost
of middle-level management, the overriding issue is to allow top management
more clear and direct access to vital information originating with front-line
employees (and vice versa). In addition to focusing on revenues and costs, the
budget process should also be taken as an opportunity for continuous monitoring
of the organizational structure of an entity.
BUDGET ESTIMATION: One thing is sure, no one can see the future. And,
budgets clearly involve a good deal of forward looking prognostication. As a
result, a certain amount of error is inevitable. Accordingly, it is easy to slip into a
trap of becoming cavalier about the estimates that form the basis for a budget.
This should be avoided. Budget estimates should be given careful
consideration. They should have a basis in reason and logically be expected to
occur. Haphazardness should be replaced by study and statistical evaluation of
historical information, as this provides a good starting point for predictions.
Changing economic conditions and trends need to be carefully evaluated.
48
SLACK AND PADDING: Because budgets frequently form an important part of
performance evaluation, human behavior suggests that participants in the budget
process are going to try to create "breathing room" for themselves by
overestimating expenses and underestimating sales. This deliberate effort to
affect the budget is known as creating "budget slack" or "padding the budget."
This is done in an attempt to create an environment where budgeted goals are
met or exceeded. However, this does little to advance the goals of the
organization.
When slack is introduced into a budget, employees may fail to maximize sales
and minimize costs. For example, once it is clear that budgeted sales goals will
be met, there may be a reduction in incentive to push ahead. In fact, there may
be some concern about beating sales goals within a period for fear that a new
higher benchmark will be established that must be exceeded in a subsequent
period. This can result in a natural desire to push pending transactions to future
periods. Likewise, padding the planned level of expenses can actually provide
incentive to overspend, as managers fear losing money in subsequent budgets if
they don't spend all of the currently budgeted funds. This has the undesirable
consequence of encouraging waste.
THE IMPOSSIBLE BUDGET AND EMPLOYEE CAPITULATION: At the
opposite end of budgetary slack is the phenomena of unattainable budget
standards. If employees feel that budgets are not possibly achievable, they may
become frustrated or disenchanted. Such a condition may actually reduce
49
employee performance and morale. Good managers should be as alert to this
problem as they are to budgetary slack. Suffice it to say that preparing a budget
involves more than just number crunching; there is a fair amount of
organizational psychology that a good manager must take into account in the
process.
2.17 COMPONENTS OF THE BUDGET
MASTER BUDGET: Business processes are highly complex and require
considerable effort to coordinate. Managers frequently cite coordination as one
of the greatest leadership challenges. The comprehensive or "master" budget is
an essential part of the coordinating effort. Such budgets consist of many
individual building blocks that are tied together in logical harmony, and reflect the
financial plan for the entire organization. Careful articulation is essential.
The starting point for the master budget is an assessment of anticipated sales via
the sales budget. The expected sales level drives both the production plans and
the selling, general, and administrative budget. Production drives the need for
materials and labor. Factory overhead may be applied based on labor, but it is
ultimately driven by overall production. The upper portion of the following graphic
is a simplified illustration of these budget building blocks. Notice that the
background colors of each block reflect dependency on another budget
The lower portion of the preceding graphic illustrates that the planned business
activities must be considered in terms of their cash flow and financial statement 50
impacts. It is quite easy to plan production that can outstrip the resources of a
company. In addition, a business should develop plans that have a successful
outcome; the budgeted financial statements are key measures of that objective.
It would be very easy to expand the above to reflect additional interactions and
budgets (e.g., the coordination of a long-term capital spending budget).
However, the graphic would start to resemble the organization chart that was
steamrolled earlier in this chapter. Little educational value would be derived by
such a complex illustration. Instead, the point is to make it clear that
comprehensive budgeting entails coordination and interconnection of various
components. Next is a detailed illustration showing how these budget concepts
are put into operation.
51
52
SALES BUDGET: The budgeting process usually begins with a sales budget.
The sales budget reflects forecasted sales volume and is influenced by previous
sales patterns, current and expected economic conditions, activities of
competitors, and so forth. The sales budget is complimented by an analysis of
the resulting expected cash collections. Sales often occur on account, so there
can be a delay between the time of a sale and the actual conversion of the
transaction to cash. For the budget to be useful, careful consideration must also
be given to the timing and pattern of cash collections.
2.18 BUDGETARY CONTROL QUESTIONAIR
Prepared by……Date………..Reviewed by……Date…………
BUDGETARY CONTROLINTERNAL CONTROL QUESTIONAIR
QuestionsYes No N/A COMMENTS
53
Planning
Is there a requirement to
meet financial targets in the
business plan?
Does the plan include a budget?
Is the budget aligned with the risk management plan? Is there a contingency plan in
place to deal with deficits?
Responsibility
• Are budgetary responsibilitiesestablished?• Are staff aware of theirresponsibilities?• How often is responsibility reviewed?
Budget Setting
-When has the budget beenapproved?- By whom?- Is this before the start of thefinancial year?-How has the budget been drawn up?-By whom?- Are budget holders involved inthe setting of the budget?-Who reviews each budget?Is this member of staff at asenior level?-Are there guidelines on howrequests for capital expenditureshould be submitted?
54
-Who produced the guidelines?-Who analyzes and reviews thebusiness case requests forcapital expenditure?-Is a reconciliation undertaken ofincome and expenditure to itemsappearing on the generalledger?-Does income and expenditureappear on the budget statements?
Information
-Are budget holders satisfied with information?-How often is information sent tobudget holders?-Is a standard report format used?
Variances
-Is there a formal virementpolicy?-Is there a requirement forbudget holders to formallyaccount for variances?-Are variations in income andexpenditure reported to budgetholders and the board?-Who actions the variations anddoes the Board take account ofthis?Management Information
-Is there a set form of budgetaryreport, which goes to the Board?-Are figures reported to the-Board reconciled to that in thebudgetary information passed tothe budget holder?
2.19 DEFINITION OF RELATED TERMS
55
Budget HolderA person who has been delegated a budget, in writing, for which they are personally responsible
Budget ManagerA person appointed by the budget holder to manage the budget on their behalf
BudgetsA financial plan covering expenditure and income. It incorporates a set amount of funds, net of any income, to deliver a specific set of aims and objectives.
Forecasts Predicted income and expenditure, split over periods of the financial year, based upon known, or expected activity. The forecast gives an indication as to the financial position at the year end.
VirementThe act of transferring budgets. Virement is subject to strict Treasury controls when moved between Administration, Programme and Capital Subheads. Movement within a subhead it permitted
CHAPTER THREE
RESEARCH METHODS AND PROCEDURES
3.1 RESEARCH DESIGN
The research method selected for the study is a
combination of a survey and an industrial study. The
survey research method is described hereunder that:
56
(i) It is a design in which primary data is gathered from
members of the sample that represents a specific
population;
(ii) It is a design in which a structure and systematic
research instrument like a questionnaire or an interview
schedule is utilized together with the primary data;
(ii) It is a method in which the researcher manipulates no
explanatory variables because they have already
occurred and so they cannot be manipulated;
(iii) Data are got directly from the subjects;
The subjects give the data the natural settings of their
workplaces;
(iv) The answers of the respondents are assumed to be
largely unaffected of the content in which they are
brought;
(v) The impacts of the confounding factors are “controlled”
statistically; and
(vi) The aim of the research may span from the exploration
phenomena to hypotheses testing (stone 1995).
57
The survey research method has some merit, which are
to be articulated hereunder: In the survey research
method, the sample of the respondents are selected in
such a way as to make it low due to the utilization of
big sample sizes, which results in generally low sample
errors.
The survey research method also has the merit that
data collection takes place in the “natural” settings of
the workplace rather than an activated laboratory. Data
are got directly from the respondents. The advantage
that the survey yields data that suggests new
hypothesis is very illuminating. There is also the merit
that a set of systematic data collection instruments
such as questionnaire interview schedules and
observation gadgets can either be used alone or in
conjunction with other instruments (stone, 1995).
3.2 Sampling
58
Spiegel (1992) observes that sampling theory is a study
of the relationship existing between a population or
universe and the samples drawn from it. The population
in this study is from the senior junior staff of the firms.
In order to make conclusions of sample theory and
statistical references to be valid, a sample must be
selected as to be representative of the population
(Spiegel,1992). One way in which a representative
sample may be got, is by the process of stratified
random sampling. In this research work, the technique
of simple random sampling is used to select the sample
of 100 respondents from each group of the personnel,
making a total sample size of 200.
The list of all senior and junior staff of the firm is from
the personnel department of the company. The
numbers were written on a piece of paper, put in a
basket and the papers were folded to cover the
numbers and one of the pieces of paper was selected at
a time without replacing it and any name corresponding
59
to the number becomes a number of the sample. This
method of sampling without replacement was done
until the sample of 100 respondents per group of
personnel was arrived at.
3.3 Population
The population, in this study is the totality of the senior
and junior staff of DELATRE BAZON NIG. LTD. WARRI.
The sample size is 200 and this number of respondents
was chosen from the population. The rationale for
studying a sample rather than the population includes
that:
1. Most empirical research work in the social
science involves studying a sample in place of the
population.
2. Statistical Laws reveal that statistics composed
from the sample data are usually reasonably accurate.
3. Luckily, it is usually possible to estimate the
level of confidence that can be placed on the results.
60
We should note that above is only possible if the
probability sample size is large enough.
3.4 Data Collection
Questionnaire
As earlier stated, the primary data collection instrument
in this study is the questionnaire. In the questionnaire
method of primary data collection, heavy dependence
is placed on verbal reports from the subjects to get
information on the earnings per share and standard set.
The questionnaire has a lot of merits. It needs less skill
to administer. Questionnaire can be administered to a
big number of individuals at the same time. Also with a
specific research budget, it is usually possible to cover
a broader area. The impersonal nature of a
questionnaire, its structure and standardized wording,
its order of question, its standardized instructions for
recording answers might make one to conclude that it
offers some uniformity from one measurement occasion
to another (Selltiz et al, 1976).
61
Another merit of questionnaire is that subjects may
have a bigger confidence in their anonymity, and thus
feel freer to express views they feel might be
disapproved.
Another attribute of the questionnaire that is
sometimes, though not always desirable is that it might
place less pressure on the subjects for immediate
response (Selltiz et al, 1976).
The questionnaire also has some demerits. It has noted
that for purpose of giving dependable responses to a
questionnaire, respondents must be considerably
educated. Thus one of the demerits of the usual
questionnaire is that it is appropriate only for with a
considerable amount of education. There is also
demerit that subject may be reluctant and unable.
To report on the particular subject matter. Also, if a
subject misinterprets a question or give his or her
answer in a batting manner, there is often a little that
can be done to ameliorate the situation. In a
questionnaire, the information the researcher gets is
62
limited to the fixed alternative answer format, when a
specific answer is not available, it can lead to error
(Selltiz, 1976).
There is also limitation of memory in reporting on past
facts. The researcher is not a policeman that can
compel answers. That is, the information may not be
readily accessible to subject and thus the subject may
be reluctant to put forth enough alternative information
that he or she is only barely conscious of (Selltiz et al,
1996).
In this research project, a structured and undisguised
questionnaire is utilized which is made up of two parts
namely, the personal data section and the section on
the data on the actual subject matter of the work. The
questionnaire was undisguised in the sense that the
purpose of the data collection which was to collect
primary data for writing up the researcher’s ND project
was made know to the 200 respondents. The
questionnaire was structured in the sense the questions
63
are logically sequenced and are to be asked to the
respondents in the same manner and no follow up
questions are to be allowed. Some of the questions are
of the fixed alternative answer format type.
Ten (10) of the questions have yes or no answers,
Ten (10) of the questions have alternative answer for
the respondents to tick.
The structured questionnaire has the merit that it yields
data that is easier to analysis than data produced by an
unstructured questionnaire. Also the structured nature
diminishes both researcher’s and research instrument
biases. It however has the demerit that the rigidity of
the research instrument diminishes the amount of
information that could be got.
Interview
The method of communication of the research
instrument is by means of the personal interview. The
method has the merit that it produces a better sample
of the population than either mail or the telephone
methods. It also has the merit that it gives a very high
64
completion and response rates. It has the merit that the
interview has a bigger sensitively misunderstandings by
the respondents and gives a chance for clarification of
misunderstood questions. It has the merit that it is a
very feasible method (Selltiz et al, 1976). The personal
interview method has the demerit that it is more costly
than the mail or the telephone methods of
communication of a questionnaire.
Observations
In addition to questionnaire and face-to face interviews,
observation was also carried out. This was to enable the
researcher to witness by herself the officers of this firm
and to interact with these people.
3.5 Field Work
The researcher and three other field data collectors did
the fieldwork. The field data collectors were other
classmates also offering the full-time ND program, who
have also offered research methodology. They had no
problem gaining entrance into the office under
65
consideration since one of them has a friend working
there. They were to be trained by the researcher on
how to greet the respondents and how to tick the
questionnaire correctly and honestly.
3.6 Description of Data Presentation and Analysis
Tools
The data presentation tools are simple bar charts,
histograms, and pictorial tables. The most important
parts of a table include;
(a) Table numbers
(b) Title of the table
(c) Caption
(d) Stub or the designation of the rows and columns
(e) The body of the table.
(f) The head note or prefatory note or explanatory just
before the title.
(g) Source note, which refers to the literally or scientific
source of the table (Mills and Walter 1995)
Anyiwe (1994) has observed that a table has the
following merits over a prose information that;
66
(f) A table ensure an easy location of the required figure;
(g) Comparisons are easily made utilizing a table than a
prose information;
(h) Patterns or trends within the figures which cannot be
visualized in the prose information can be revealed and
better depicted by a table; and
A table is more concise and takes up a less space than
a prose formation:
The data is to be analysed by means of percentage,
cross tabulation and the chi-square test of population
proportions for testing the two hypothesis. Percentages
express the ratio of two sets of data to a common base
of 100. the researcher made us of the computer
program called SPSS (statistical package for social
science) to carry out the computation of the hypothesis
testing.
3.7 limitation of The Study
67
Research work is subject to one form of limitation or the
other, mine is not an exemption.
It was the initial thought of the researcher that the
exercise was easy but the contrary was the case. As a
student, several academic demands compete with the
limited but precious time available.
This implies that none of the competing exercise could
be effectively handled without the others being worse
off.
This was my situation. Although the time expended was
too small to do justice to the study. The opportunity
cost in terms of other equally important activities
forgone or cursorily attended to, was made.
The researcher faces some embarrassment arising from
low-level educated staff who could not understand the
essence of the research work as this.
CHAPTER FOUR
68
DATA PRESENTATION AND ANALYSIS
4.1 INTRODUCTION
In the previous chapter, the research methods and
procedures have been handled. In this chapter the data
presentation and analysis are to be done. The data is to
be presented by means of tables, two simple bar
charts, one histogram and one pie chart to make it
amenable for further analysis. By analysis is meant the
act of noting relationship and aggregating the set of
variables with similar attributes and also breaking the
unit of their components (Mills and Walters 1995).
In this research work, the research accepts the
contention of Podsakoff and Dalton (1995) that the
factual information from the data can be used as a
basis for reasoning, calculation and discussion.
Apart from the heading above, the other headings in
this chapter includes:
Data Presentation,
69
Percentage analysis
Cross-tabulated analysis
Hypothesis testing
4.2 DATA PRESENTATION
TABLE1THE SUMMARY OF THE PERSONAL DATA OF THE
RESPONDENTS
70
1
2
3
4
SEXMale
FemaleTotal
Marital StatusMarriedSingleTotalAGE
21-30 years31-40 years41-50 years51-60 years
TotalHIGHER
EDUCATIONALQUALIFICATION
DIPLOMAONDHND
FIRST DEGREESECOND DEGREE
NIMTOTAL
FREQUENCY15050200
13070200
90901010200
103080204020200
Anglessuspendedin degree
1854144363236360
The marital statuses of the 200 respondents it is found
that 130 of them are married while 70 of them are
single. For the ages of the 200 respondents they are 21-
30 years, 31-40 years, 51-60 years with frequency of 90
and 10 respectively. For the highest educational
qualification of the 200 respondents they are diploma, 71
OND, HND, First Degree, Second Degree, NIM. and they
have frequencies of 10, 30, 80, 20, 40 and 20
respectively.
Figure 4.1 below shows the simple bar chart of the data on
the sex of the respondents.
FIGURE 4.1: THE SIMPLE BAR CHART OF THE DATA ON THE SEX OF THE RESPONDENTS
GENDER OF THE RESPONDENTS
GENDER OF THE RESPONDENTS
Source: from data in table 1
Frequency
percentage
Valid Percent
Cumulative Percent
MAIL 150 75.0 75.0 75.0FEMAL
E50 25.0 25.0 100.0
Total 200 100.0 100.0
72
160
140
120
100
80
60
40
20
0
-
-
-
-
-
-
-
-
-
MAIL FEMALE
From figure 4.1 above, it is shown that male
respondents have the modal frequency of 150 of the
200 respondents while the female respondents have
the frequency of 50 of them.
Figure 4.2 below shows the simple bar chart of the data
on the marital statuses of the respondents.
FIGURE 4.2: THE SIMPLE BAR CHART OF THE DATA ON THE MARITAL STATUSES OF THE RESPONDENTS
MARITAL STATUS OF THE RESPONDENTS
From figure 4.2 above, it is shown that the married
respondents have the modal frequency of 130 out of the 200
Status frequency
Percentage
Valid Percent
Cumulative Percent
MARRIED 130 65.0 65.0 65.0SINGLE 70 35.0 35.0 100.0Total 200 100.0 100.0
73
140
120
100
80
60
40
20
0
-
-
-
-
-
-
-
-MARRIED SINGLE
respondents while the single respondents have the
frequency of 70 of them.
FIGURE 4.3: THE HISTOGRAM OF THE DATA ON THE AGES OF THE RESPONDENTS.
AGES OF THE RESPONDENTS
AGES OF THE RESPONDENTS
SOURCE: From the data in Table 1.
74
020
4060
8010
0
1.0 2.0 3.0 4.0
Std. Dev = 78 Mean = 1.7 N = 200.00
Categories
Frequency
Percentage
ValidPercentag
e
Cumulative Percent
21 TO 30YEARS
90 45.0 45.0 45.0
31 TO 40YEARS
90 45.0 45.0 90.0
41 TO 50YEARS
10 5.0 5.0 95.0
51 TO 60YEARS
10 5.0 5.0 100.0
Total 200 100.0 100.0
From figure 4.3 above, it is shown that the age classes limit
are 20.5-30.5 years, 30.5-40.5 years, 40.5-50.5 years and
50.5-60.5 years with frequencies of 90, 90, 10, and 10 out of
200 respectively. This shows that this is bi-modal distribution
as the age classes of 20.5-30.5 years and 30. 5-40.5 years
have a frequency of 10.
Figure 4.4 below shows the pie chart of the data on the
highest educational qualifications of the 200 respondents.
FIG.4.4 THE PIE CHART OF THE DATA ON THE HIGHEST EDUCATIONAL QUALIFICATIONS OF THE 200 RESPONDENTS
75
15%
5%
10%
40%
10%
20%
NIM DIPLOMA
OND
SECOND DEGREE
EDUCATIONAL QUALIFICATION OF THE RESPONDENTSEducationa
l levelFrequenc
y
Percentag
e
Valid Percentag
e
Cumulative
Percentage
DIPLOMA 10 5.0 5.0 5.0
OND 30 15.0 15.0 20.0
HND 80 40.0 40.0 60.0
FIRST DEGREE
20 10.0 10.0 70.0
SECOND DEGREE
40 20.0 20.0 90.0
NIM 20 10.0 10.0 100.0
Total 200 100.0 100.0
SOURCE: from the data in table 1.
From figure 4.4 above, the Highest Educational Qualifications
are Diploma, O.N.D, First Degree, Second Degree and NIM
and the sustained angles in degree is equal to 180, 540, 1440,
360, 720 and 360 and respectively at the center of the circle.
4.4 CROSS-TABULATED ANALYSIS
76
Table: 3 below show the analysis of the statuses of the 200
respondents
Cross- tabulation 1
The above table shows that the total of 100
respondents (out of 200 said no. this proved that
electronic commerce can speed up economic
development.
Cross-tabulation 2
77
DIPLOMA OND HND
FIRST DEGREE SECOND DEGREE NIM
Total
DOES BUDGETARY CONTROL OPERATES IN VARIOUS COST CENTRES AND DEPARTMENTS WITH EFFICIENCY AND ECONOMY?
YES NO DON’T KNOW
NOANSWER
Total
61914
-4021100
2
3110
43
2
39
39
22
79
18
39
101991
19
4021200
39
DIPLOMA 10 10 OND 19 19 HND 14 30 47 91
FIRST DEGREE 10 9 19 SECOND DEGREE 40 40 NIM 21 21
Total 104 40 47 9 200
DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF
A BUSINESS ENTERPRISE?
YES NODON’TKNOW
NOANSWER Total
The above table indicates that electronic commerce can
make doing business more or less expensive. 104
respondents out of 200 said yes. While 40 did not agree
with the fact.
Chi-Square Test (1)
DOES BUDGETARY CONTROL OPERATES IN VARIOUS COST CENTRES AND DEPARTMENTS
WITH EFFICIENCY AND ECONOMY?
Observed
F
ExpectedF
Residual Decision
YESNO DON’TKNOW NOANSWERTotal
100 43
39
18 200
50.0 50.0
50.0
50.0
50.0 -7.0
-11.0
-32.0
AcceptReject
Reject
Reject
Chi-Square Test (2)
78
DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF
A BUSINESS ENTERPRISE?
Residuals
The observed value of the dependent variable minus
the value predicated by the regression equation, for
each case. Large absolute values for the residuals
indicate that the observed values are very different
from the predicted values.
SOURCE: From the questionnaires administered.
DOES BUDGETARY CONTROL OPERATES
IN VARIOUS COST CENTRES AND
DEPARTMENTS WITH EFFICIENCY AND
ECONOMY?
DOES BUDGETARY
CONTROL HELPS IN ELIMINATING
WASTES AND RAISES THE
PROFITABILITY POSITION OF A
BUSINESS ENTERPRISE?
Observed
F
ExpectedF
Residual Decision
YESNO DON’TKNOW NOANSWERTotal
104 40
47
9 200
50.0 50.0
50.0
50.0
54.0 -10.0
-3.0
-41.0
AcceptRejected
Rejected
Rejected
79
Chi-Squaredf
73.880 3
94.120 3
TEST STATISTICS
note: df = degree of freedom
ALTERNATIVE HYPOTHESIS
1. Does budgetary control operates in various cost centres and departments with efficiency and economy?
Looking at the chi-square test 1 above, the computer
program of the observed number or frequency is 100,
expected number or frequency is 50 making Large
absolute value for the residual and from the statistics,
we have the chi-square of 73.880 at 3% degree of
freedom. We accept the hypothesis.
2. DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES AND RAISES THE PROFITABILITY POSITION OF
A BUSINESS ENTERPRISE?
The chi-square test 2 above, the computer program of
the observed number or frequency is 104, expected
number or frequency is 50 making Large absolute value
for the residual and from the test statistics, we have the
80
chi-square of 94.120 at 3% degree of freedom. We
accept the hypothesis.
NULL HYPOTHESIS
1. Budgetary control do not operate in various cost
centres and departments with efficiency and
economy.
Looking at the hypothesis 1 above, the computer
program of the observed number or frequency is
43, expected number or frequency is 50 making a
negative absolute value for the residual. We reject
the hypothesis.
2. Budgetary control does not help in eliminating
wastes and raises the profitability position of a business
enterprise.
On the chi-square test 2 above, the computer program
of the observed number or frequency is 40, expected
number or frequency is 50 making negative absolute
value for the residual so we reject the hypothesis.
81
CHAPTER FIVE
FINDINGS, SUMMARY AND
CONCLUSION
5.0 INTRODUCTION
In this chapter, the researcher deals with the findings
as regards anatomy of budget and budgetary control in
82
business organisation. The work is summarized with the
conclusion drawn
5.1 FINDINGS
During the research work, the researcher found out that………………..
Budgets can take many forms and serve many functions. Budgets can
provide the basis for detailed sales targets, staffing plans, inventory
production, cash investment/borrowing, capital expenditures (for plant
assets, etc.), and on and on. Budgets can provide benchmarks
against which to compare actual results and develop corrective
measures. Budgets give managers "preapproval" for execution of
spending plans. Budgets allow managers to provide forward looking
guidance to investors and creditors. Budgets are necessary to
convince banks and other lenders to extend credit. She also found out
that …..All budgets must be profiled across the financial year, and
must reflect the expected income or expenditure appropriate to the
periods within the financial year; Budgetary control is A control
technique whereby actual results are compared with budgets.
Budgetary control compels business administration to think about the
future.
83
5.2 SUMMARY
In summary, the researcher has been able to unveil the
purpose of budgeting as a means of….
-Providing a forecast of revenues and expenditures
-Enabling the actual financial operation of the business to be
measured against the forecast and also showed that
Budgets are valuable tools in good management. To plan,
monitor, control and adapt resources to meet agreed
business objectives whilst remaining within notified limits
management should consider
1. Potential Risks which are:..
Inappropriate allocation of resources – failure to meet
business objectives
Inability to adapt to unexpected events
Poor decision-making
Inadequate / inaccurate records
Fraud/ Theft – financial loss
Departmental embarrassment
Business interruption84
Inefficient use of resources
And effect Possible Controls on:
Delegation letters
Forecasting
Variance Analysis
Business planning (including challenge – review plan /
planning process)
Communication between Budget Holders and Budget
Managers
Regular Finance Meetings.
Use and dissemination of Phoenix reports.
Training and guidance (including non-finance staff).
Continuously challenging assumptions used in setting
plan.
Area & Central Monitoring – up and down the line
Exception reporting
Process to capture and record information
Consistent methodology –
Standardisation of output
85
5.3 CONCLUSION
We need to know that many financial reporting frauds have
their genesis in overly optimistic budgets that subsequently
lead to an environment of "cooking the books" to reach
unrealistic goals. These events usually start small, with the
expectation that time will make up for a temporary problem.
To maintain organizational integrity, senior-level managers
need to be careful to provide realistic budget directives.
Lower-level managers need to be truthful in reporting "bad
news" relative to performance against a budget, even if they
find fault with the budget guidelines.
The formal budgeting system has the following major
benefits.
1. Budgeting due to its formal time table or schedule
compels managers to think ahead apart from taking care of
their current activities.
2. Budgeting, due to its approval and authorization by the
superiors, provides definite expectations that are the best
framework for judging subsequent performance.
86
3. Budgeting helps in coordinating the various departments
of the organization. The budget harmonizes the goals
(objectives) of the individual departments into the
organization wide goals (objectives).
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