Budgeting in the organisation is an important device for fixing the responsibility of various positions. Budgetary control is the process of determining various budgeted figures for the enterprise for the future period and then comparing the budgeted figures with the actual performance for calculating variances, if any. Budgetary control reports the significant variations from the budgets to the top management in the organisation. The benefits derived for the concern will ultimately extend to industry and then to national economy. Budget Period: A budget period is the length of time for which a budget is prepared and employed. Budgetary control in itself does not prevent deviation from appearing.
The actual performance of different departments is communicated to the Budget Officer. Analysis of variations of actual performance from that of the budgeted performance to know the reasons thereof. Personal Observation: There are certain kinds of impression and information that can be conveyed only through face-to-face contact, personal observation and conversation in the organisation. Taking suitable, remedial action, where necessary. The national resources will be used economically and wastage will be eliminated. Since separate budgets are prepared for each department becomes easier to determine the weak points and the sources of waste of time, money and resources.
In extreme circumstances, such as when you cannot get managers to rein in spending and stick to their budget, you can take away budgetary control. Determination of Key Factor: The budgets are prepared for all functional areas. If discrepancies are found, key players within a company have two choices. Specific Aims: The plans, policies and goals are decided by the top management. In the light of the reasons identified, further course of action is planned so that in future there is no such variation in the organisation.
Delays involved in the red tapism and discussing matters with one another sets procedural wrangles aside. Detailed Organization Structure: There should be a detailed organization structure with precisely designed authorities, responsibilities and lines of communication so that everybody in the organisation understands the significance of objectives in detail. Objectives of Budgetary Control: The main purpose of budgetary control is to enable the management to conduct the business in the most efficient manner in the organisation. In the business world, a budget is the formal expression of the expected incomes and expenditure for a definite future period. Internal audit feeds managers with a continuous supply of control information in the organisation.
To overcome the problem of coordination a Budgetary Officer is needed. Lastly, management will focus on how they tried to correct the problem operations and develop a plan to fix them in the next period. Budgetary control has become an essential tool of management for controlling costs and maximizing profits. Budgetary control embraces all and in addition includes the science of planning the budgets themselves and the utilization of such budgets to effect an overall management tool for the business planning and control. Managers, in the organisation after all, have responsibility of achieving organisational objectives whatever control devices they use. Budget Centres: A budget centre is that part of the organization for which the budget is prepared.
He includes chapters on relevant constitutional provisions and procedures; structure of the central government budget; functional, economic, and cross-classification of the budget; recent budgetary reforms; central government taxes, expenditures, subsidies, and debt liabilities; state government taxes; center-state financial relations; transfer of resources through the finance commission and the planning commission; and state-local financial relations. He determines the deviations in the budgets and the actual performance and takes necessary steps to rectify the deficiencies, if any. Control through standard costing involves the following steps: 1. A budget refers to a written document detailing the ways an organization will allot its money. Uncertain Future: The budgets are prepared for the future period. Quick Reporting: A good system of budgetary control in the organisation requires the establishment of such procedures, which will provide reports on the performance of various operations.
Control through key results areas example market position, productivity, product leadership, executive development etc. Budgetary control helps in comparing the performance of various individuals and departments with the predetermined standards laid down in various budgets. Frequent Comparison: There should be frequent comparison between budget estimates and operating results in the organisation. Results are not expected in too short period in the organisation. It neither ensures satisfactory results nor control automatically in the organisation. Organization for Budgetary Control: The proper organization is essential for the successful preparation, maintenance and administration of budgets.
Organisation for Budgetary Control 2. A budget, which allows liberal expenditure, may be used to hide inefficiency. Top management in the organisation should take the preparation of budgets and their implementation seriously in order to achieve the objectives of the enterprise. When a man is now to the job, a supervisor will like to watch his work more closely than he would that of an experienced operator in the organisation. Economy: The planning of expenditure will be systematic and there will be economy in spending.
Meaning: Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. This method serves as a tool of forward control by enabling management to take measures of obtaining the desired results. Reduces Costs: In the present day competitive world budgetary control has a significant role to play. Budgetary control in the organisation requires expenditure of time, money and effort. The break-even point can be calculated by two different procedures: i Algebraic break-even analysis. It provides a method of control too. Fixed costs are the costs, which generally remain constant and are independent of production levels.
The change in future conditions upsets the budgets which have to be prepared on the basis of certain assumptions. The establishment of budget centres is essential for covering all parts of the organization. These are as follows: 1. Essential of Effective Budgetary Control: Following are requirements of a good system of budgetary control: in the organisation 1. Characteristics of Budget Budgets have the following characterics: 1. A comparison between standard costs and actual costs is made in order to find out the variation between the two in the organization.