1

2

WHAT IS A BUDGET?A plan expressed in terms of money. It shows income, expenditure and the capital to be employed. It may be drawn up showing incremental effects on former budgeted or actual figures, or be compiled by Zero-based budgeting.

3

WHAT IS BUDGETARY CONTROL?

•Budgetary control is the use of the comprehensive system of budgeting to aid management in carrying out its functions like planning, coordination and control.

• Division of organization on functional basis into different sections known as a budget centre.

Preparation of separate budgets for each “budget centre”.

Consolidation of all functional budgets to present overall organizational objectives during the forthcoming budget period.

Comparison of actual level of performance against budgets.

Reporting the variances with proper analysis to provide basis for future course of action.

4

5

CLASSIFICATION OF BUDGETS

ACCORDING TO ACCORDING TO ACCORDING TO TIME FUNCTION FLEXIBILITY

1. Long term budget 1. Sales budget 1. Fixed budget2. Short term budget 2. Production budget 2. Flexible

budget3. Current budget 3. Cost of Production budget4. Rolling budget 4. Purchase budget 5. Personnel budget 6. R & D budget 7. Capital Expenditure budget 8. Cash budget 9. Master budget

6

• MASTER BUDGET:

It defines the budget as “ The summary budget incorporating its component functional budget and which is finally approved, adopted and employed”.

Thus master budget is a summary of all functional budgets in capsule form available in one report.

• FIXED BUDGET:

This is defined as a budget which is designed to remain unchanged irrespective of the volume of output or turnover attained.

This budget will, therefore, be useful only when the actual level of activity corresponds to the budgeted level of activity.

7

SALES BUDGET:

Sales budget is the most important budget based on which all the other budgets are built up. This budget is a forecast of quantities and values

of sales to be achieved in a budget period.

• PRODUCTION BUDGET:

Production budget involves planning the level of production which in turn involves the answer to the following questions:

a. What is to be produced?

b. When is it to be produced?

c. How is it to be produced?

d. Where is it to be produced?

8

• COST OF PRODUCTION BUDGET:

This budget is an estimate of cost of output planned for a budget period and may be classified into –

• Material Cost Budget

• Labour Cost Budget

• Overhead Cost Budget

• PURCHASE BUDGET:

This budget provides information about the materials to be acquired from the market during the budget period.

9

• FLEXIBLE BUDGET:

CIMA defines this budget as one “ which, by recognizing the difference in behavior between fixed and variable costs in relation to fluctuations in output, turnover or other variable factors such as number of employees, is designed to change appropriately with such fluctuations”.

• PERFORMANCE BUDGETING:

These days budgets are established in such a way so that each item of expenditure is related to specific responsibility centre and is closely linked with the performance of that standard.

10

• CAPITAL EXPENDITURE BUDGET:

This is an important budget providing for acquisition of assets necessitated by the following factors:

a. Replacement of existing assets.

b. Purchase of additional assets to meet increased production

c. Installation of improved type of machinery to reduce costs.

• CASH BUDGET:

This budget gives an estimate of the anticipated receipts and payments of cash during the budget period.

Cash budget makes the provision for minimum cash balance to be maintained at all times.

11

• PERSONNEL BUDGET:

This budget gives an estimate of the requirements of direct labor essential to meet the production target.

This budget may be classified into –

a. Labor requirement budget

b. Labor recruitment budget

• RESEARCH AND DEVELOPMENT BUDGET:

This budget provides an estimate of expenditure to be incurred on R & D during the budget period.

A R&D budget is prepared taking into consideration the research projects in hand and new R & D projects to be taken up.

12

• ZERO BASE BUDGETING:The zero base budgeting is not based on the incremental approach and previous figures are not adopted as the base.

Zero is taken as the base and a budget is developed on the basis of likely activities for the future period.

A unique feature of ZBB is that it tries to help management answer the question, “Suppose we are to start our business from scratch, on what activities would we spent out money and to what activities would we give the highest priority?”

13

• RESPONSIBILITY ACCOUNTING:

Responsibility accounting fixes responsibility for cost control purposes by establishing responsibility centres namely –

a. Cost centre

b. Profit centre

c. Investment centre

Principles of responsibility accounting are as follows:

1. Fixation of targets for each responsibility centre

2. Actual performance is compared with the target

3. The variances therein are analyzed so as to fix the responsibility of centres.

4. Taking corrective action.

14

Thank You