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Budgegary Control

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7 views

Budgegary Control

Uploaded by

Molly Rastogi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Budgetary Control

Budgeting
 Financial and/or quantitative statement
prepared prior to a defined period of time, of the
policy to be pursued during that period for the
purpose of attaining a given objective.
 It may include income, and the employment of
capital.
Uses of Budgeting
• To provide useful information to management for
planning and control.
• Budgeting acts as a tool for both planning and
control.
• Formal process of financial planning using estimated
financial and accounting data.
• Forecasting is a process of predicting or estimating
future happening.
• Forecasting is an essential part of the budgeting
process.
Features Of A Budget
• One-year Duration
• Estimation of Business Unit’s Profit Potential
• Appraisal of Performance
• Monetary Terms
• Alteration of Approved Budget Under Specific
Conditions
• Review and Approval by Higher Authority
Elements Of Successful Budgeting Plan

 Accurate Forecasting of Business Activities


 Coordinating Business Activities
 Communicating the Budgets
 Acceptance and Cooperation
 Reasonable Flexibility
 Providing a Framework for Evaluation
Forecast vs Budget

Forecast Budget

 It is a statement of probable  It indicates and lays down


events in the future based on the programs, plans and
some anticipated events. policies that have to be
followed for long term
 It does not provide any sense objective
of control.
 It controls the actions of
the firm.
 It is the preceding step of
 It starts when forecasting
budgeting. ends.
Types of
Budgets
Time Condition
Capacity Coverage
Period s
Long Basic Fixed Functiona
Term Budget Budget l Budget
Short Current Flexible Master
Term Budget Budget Budget
Fixed Budgeting
• A fixed budget is the budget which is designed to
remain unchanged irrespective of the level of activity
actually attained.
• It is based on a single level of activity.
• A fixed budget performance report compares data from
actual operations with the single level of activity
reflected in the budget.
• However, in practice, fixed budgeting is rarely used.
• The main reason is that actual output is often
significantly different from the budgeted control.
Flexible Budgeting
 It is a budget, which by recognizing the difference
between fixed, semi-variable, and variable costs, is
designed to change in relation to the level of
activity.
 A flexible budget is prepared for a range, i.e. for
more than one level of activity.
 It is a set of alternative budgets to different
expected levels of activity.
Characteristics Of Flexible
Budgets
 Cover a range of activity
 Dynamic in nature
 Facilitate performance measurement
Budgetary Control System
• Budgetary control is a systematic and formalized
approach for accomplishing the planning,
coordination, and control responsibilities of
management.
• CIMA, - ‘Budgetary control is the establishment of
budgets relating the responsibilities of executives
to the requirements of a policy and the continuous
comparison of actual with budgeted results either to
secure by individual action the objective of that
policy, or to provide a basis for its revision.’

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