Budgetary Control[1]
Transcript of Budgetary Control[1]
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Budgetary control
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Budget
A budget is a plan relating to a period of
time expressed in quantitative terms. It is
concerned with a definite future period &is, therefore prepared in advance of the
period during which it is to be operated.
Budget is the expression of firms plan infinancial form for a period of time in the
future. J.F. Weston
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Budgeting
Budgeting means formulation of plans for future
activity covering Constructed objectives &
programs of activity & provide yardstick by
which deviations from achievements may be
measured.
Budgeting is a kind of future tense accountancy
in which the problems of future are meet beforethe transaction actually occurs.
William J. Batty
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Essentials of effective budgeting
system Support to top level management
Effective organisation
Clearly defined business policy
Cost concept
Effective Control
Budget formation
Maximising the profits
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Budgetary Control
Budgetary control is a technique & modern toolof managerial control through preparation ofvarious budgets.
It means worrying before work rather than after.
Budgetary control is the system of controllingcosts which includes the preparation ofbudgets,coordinating the departments &
establishing responsibilities, Comparing actualperformance with the budgeted & acting uponresults to achieve maximum profitability
Browns & Howard
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Characteristics of Budgetary
Control Planning
Coordinating
Recording
Control
Appraisal
Follow-up
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Objectives
Efficiency in production work
Importance of Cost accounts
Control on cost
Analysis of expenses & control on
income& expenditure
To know about cash requirements
Economy
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Advantages
Effective planning
Cooperation & team spirit
Tools for periodical evaluation Motivation to management
Development of cost consciousness
Evaluation of performance
Productive competition
Stability in business operation
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Limitation
The budgets are based on forecasts.
Objections by employees
Danger of rigidity
Expensive technique
No substitute of managment
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Budgetary Control Process
Establishment of budget centers
Establishment of adequate accounting records
Preparation of an organisation chart The Budget committee
Budget manual
Budget Period
Determination of key factors Level of activity
Flexibility of budgets.
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Budgetary Control Ratios
Activity Ratio:- Activity Ratio is measure of thelevel of activity attained over a period of time.
=Actual output in terms of standard hours *100
Normal or budgeted hours
Capacity Ratio:- this ratio indicates whether & towhat extent budgeted hours of activity areactually utilised.
=actual hours worked *100
Normal budgeted hours
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Efficiency Ratio:- It indicates the degree
of efficiency got in production.
= Standard hours for actual production *100Actual hours worked
Interrelationship
Activity Ratio=Efficiency Ratio*Capacity Ratio