BUDGET AND

BUDGETARY CONTROL
INTODUCTION
MEANING
DEFINATION
OBJECTIVES
ADVANTAGE
DISADVANTAGE
FUNCTIONS
TYPES OF BUDGET
ILLUSTRATION

INTRODUCTION
Budgeting is most widely used as tool in

management for planning and control.

Planning is a good management as it involves
systematically at the future.
Budget helps the managers in developing
financial plan to guide them in allocating the
resources over a future period.
Control is a process of measuring and
correcting actual performance and
implementing this plans for chosen course of
action carried out.

DEFn- MEANING OF
BUDGET & BUDGETARY
CONTROL
The act of preparing budgets is called budgeting. In other
words of J . Batty, the entire process of preparing the
budgets is known as budgeting.
According to brown & howard Budget is predetermined
detailed plan of action, developed and distributed as a guide
to current operations for the valuation of performance.
According to brown & howard Budgetary control means
controlling costs through preparation of budgets. Budgeting
is a part of budgetary control. It includes co-ordinating the
dept and establishing the responsibilities , comparing actual
performance with budgeted and taking actions upon results
to achieve max profitability.

CHARACTERISTICS OF
BUDGET
A budget is primarily a planning device but it

also serves as a basis for performance

evaluation and control.
A budget is prepared either in money terms or
in quantitative terms or in both.
A budget is prepared for a definite future
period.
Purpose of a budget is to implement the
policies formulated by management for
attaining the objectives.

CHARACTERISTICS OF
BUDGETARY CONTROL
Establishment of budgets for each dept of the

organization.
Comparison of actual performance with the
budgets on a continuous basis.
Analyzing the variations of actual
performance from budgeted performance
Remedial actions if necessary,
Revision of budgets in view of change in
conditions.

OBJECTIVES OF BUDGETARY
CONTROL
Planning
Co-ordinating
Communication
Motivation
Control
Performance evaluation

FORECAST & BUDGET

Forecast

Budget

It is a prediction of what

It is a planned exercise to

happens in such circumstances

of future events.

achieve a target, based on pros

and cons of a forecast.

Relates to probable events.

Relates to planned events.

Prepared by anyone.

Prepared by authorized

It is an anticipation of events.
Pre-requisite of budgeting.
relates to economic activities

and non economic activities like

stock mkt, weather forecast, etc.

management.
It is a tool to control events.
Not Pre-requisite of budgeting
relates to economic activities

like business, govt, enterprises

or others.

ADVANTAGES OF
BUDGETARY CONTROL
Maximization of profits.
Co-ordination.
Specific aims.
Tool for measuring performance.
Economy.
Determining weaknesses.
Corrective actions.
Consciousness.
Reduces costs.

DIS-ADVANTAGES OF BUDGETARY
CONTROL
Plan is based on estimates.
Danger to rigidity.
Budgeting is only a tool of management.
Problems from co-ordination.
Expensive technique.
Conflicts among different dept.
Uncertain future.

TYPES OF BUDGET

Classification according to time

- long term budgets

- short term budgets
- current budgets
Classification according to functions
- sales budget
- production budget
- production cost budget
- raw material budget
- purchase budget
- financial budget
- master budget
- labor budget
- cash budget
- cash expenditure budget
- administration expenses budget
- selling & distribution expenses budget

Classification according to capacity wise

- fixed budget
- flexible budget

Classification according to time

long term budgets :prepared for long term planning of the business. The period
for long term
varies between 5 to 10 years. Long
term plan is usually done by the top management.
-

-short term budgets :prepared for short term planning of the business. The period for
short term varies between 1 to 2 years. Long term plan is usually
done by the top management.
-current budgets :The period for short term varies between months and weeks. It
is relate to the current activities of the business. It is established
for short term of time and is related to current conditions.

Classification according to functions:-

- sales budget
The sales budget is a statement of planned sales in terms of
quantity and value. It forecast what the company can reasonably
expect to sell to its customers during the budget period.

- production budget
It provides the estimate of production for the budgeted period. It shows
the quantities of production.

- production cost budget

It shows the estimated cost of production. The production budget
shows the quantities of production .the quantities are expressed in
terms of cost in production cost budget.

- raw material budget

It shows the estimated quantity of all the raw materials and
components needed for production demanded by production
budget.

- purchase budget
It provides the detail of the purchase which are planned to be made
during the period to meet the needs of the business .

- master budget
According to CIMA, master budget is a summary budget
incorporating its component functional budget and which is finally
approved, adopted and employed.

- labor budget
It represents the forecast of labor requirement to meet the demand
of the company for the budget period. It shows the quantities of
production.

- cash budget
It is a detailed estimate of cash receipts from all sources and cash
payments for all purposes and resulted cash balances during the
budget period.

- capital expenditure budget

It represents the expenditure on all fixed assets during the budget
period. It includes such items as new buildings, machinery, land and
intangible items like patents,etc

- administration expenses budget

This budget represents forecast of all administration expenses like
directors fee, managing directors salary, office lighting, heating
and air conditioning etc. most of these expenses are fixed, so
should not be too difficult to forecast.

- selling & distribution expenses budget

it represents the forecast of all the costs incurred in selling and

Classification according to capacity wise

- fixed budget
According to CIMA, chartered institute of management
accountants of england, a fixed budget, is a budget designed to
remain unchanged irrespective of the level of activity actually
attained.

- flexible budget
Flexible budget is a budget which is designed to change in
relation to the level activity attained. It consists of various
budgets for different levels of activity. While preparing a flexible
budget the expenses are classified into three categories viz.
1fixed
2variable
3semi-variable

Difference between fixed and

flexible budget
Fixed budget

flexible budget

It does not change with actual

It can be recasted on the basis

volume of activity achieved. Thus it

is known as rigid or fixed budget.
Here as all costs like- fixed,

variable and semi-variable are

related to only one level of activity
so, analysis of variance does not
provide useful information.
A fixed budget is a static budget

that is based on the projected level

of output prior to the start of the
period.
Limited use of control.

of activity level to be
achieved. Thus it is not rigid.
analysis of variance provide
useful information as each
cost is analyzed according to
its behavior.
A flexible budget adjusts the

static budget for the actual

level of output.
Useful for cost control and

performance evaluation.