Budgets and Budgetary Control

Unit VI:

Budget

Planning

Controlling

Versatile tool

MEANING OF BUDGET

BUDGET is the planned future course of action.

According to Brown and Howard of Management Accountant "a budget is a predetermined statement of managerial policy during the given period which provides a standard for comparison with the results actually achieved."

Features:

Quantitative Statement. Futuristic prepared

Goal Oriented
Components Income, Expenditure and Employment of Capital.

The objectives of Budget

To encourage self-study To get all members of management to put their heads To promote the planning process and provide a sense of direction To increase the effectiveness

To direct and coordinate business activities

To facilitate the control process

BUDGETARY CONTROL

BUDGETARY CONTROL is the system of management control and accounting in which all operations are forecasted as far as possible

and are planned ahead and actual results are compared with
planned & forecasted ones - J.A.SCOTT.

ADVANTAGES OF BUDGETARY CONTROL

Profits are maximized.

It facilitates controlling of activities.

Effective co-ordination is made possible. Executive performance is evaluated. Clear-cut goals and targets are set. Economy in operations is achieved through planned expenses. It creates cost consciousness.

LIMITATIONS OF BUDGETARY CONTROL

It involves predicting the future which is highly uncertain. budgets based on past data may not be relevant. In reality, gaining full co-ordination of all the employees may be difficult. There may be conflict among different departments.

Preparation of a budget is very difficult.

Resistance in accepting also will not result in achieving the set goals.

Master Budget

The collection of a series of subsidiary or functional budgets into a total or master budget is the outcome of the budgeting process.

Elements of a Master Budget

Raw Materials Budget Manufacturing Overheads budget Administration Expenses Budget

Labour Budget

Sales Budget

Selling Expenses Budget

Purchasing Budget

Distribution Expenses Budget Research & Development Budget

Marketing Budget

Manpower Budget

Production Budget

Classification of Budgets

Short Term Budget

Long Term Budgets

Fixed budget

Classification of Budgets

Short Term Budget Long Term Budgets Fixed budget

Flexible budget
Sales budget Production budget Capital Expenditure Budget Labour budget Materials budget Cash budget

Flexible Budget Format

Flexible Budget
Particular A.Variable Cost :i. Material ii. Labour iii. Direct Expenses iv. Variable Factory overhead Total of A B. Semi-Variable Costs:Selling Expenses Distribution Expenses Total of B Level of Operation

C. Fixed Costs: Administrative Expenses Insurance Maintenance cost Depriciation Fixed Factory Overhead
Total of C Total of A+B+C

Ex.1. the expenses budgeted for production of 10,000 units in a Pepsi factory are furnished below:
Per Unit Materials Labour Variable factory overheads Fixed factory overhead (Rs. 1, 00,000) Variable expenses (Direct) Selling expenses (10 % Fixed) Distribution expenses (20 % Fixed) Administrative expenses (Rs. 50,000) 75 35 20 15 8 15 7 5

Total cost of sale per unit

180

You are required to prepare a budget for the production of 8,000 units. B) 6000