Coordination: Budgets are helpful in coordination of business activities. The cost of installing and operating a budgetary control system should be commensurate with the benefits derived there from. In brief, it is a technique to assist the management in the allocation of responsibility and authority, to provide it with aid for making estimating and planning for the future and to facilitate the analysis of the variations between estimated and actual performance. The cost ingredients of the breakeven analysis are: a Fixed Cost, b Variable costs, and c Total costs. To plan and control income and expenditure in such a fashion so as to achieve maximum profitability. We provide complete coaching for Commerece and Arts stream from Class 12 to Master Degree level. Budgetary control reports the significant variations from the budgets to the top management in the organisation.
Such activities result in sub-optimal profit for the company. Participation of All Departments Concerned: Budgets are to be set for all the departments so that their participation in implementation will be effective. It may render the budgetary control process as inefficient as it will not have any effect if the conditions of the business environment change. The top management also should adhere to the budget and provide cooperation. For example: The sales budget is prepared after forecasting the future situations. Budgets serve as job descriptions.
Other variances might prove to be much more difficult, and sometimes impossible, to control. Complacence: General tendency of employees is to achieve the targets as budgeting fixes the targets. No organisation can survive in this competitive market without the minimization of costs. It defines the goals, plans and policies of the enterprise. Benefits of budgetary control include encouraging management to think about the future, improving coordination and communication, defining areas of responsibility and finding ways to allocate scarce resources.
The standards are fixed for different components of cost separately in the organisation. The following are the essential requisites for implementing budgetary control successfully: 1. The information given is useful only when it is relevant, accurate, timely and right quantity. 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. You can learn more from our online teachers available.
Budgetary control takes the help of different levels of management in the preparation of the budget. This leads to proper coordination of the efforts of various departments of the enterprise in the organisation. Budgeting is t echnique for formulating budgets. Thus, future uncertainties minimize the utility of budgetary control system. Standard Costing vs Budgetary Control Standard costing and budgetary control have the common objective of cost control by establishing pie-determined targets. Sometime the employees might not like the integration of departments as they may find It contradicting and hindrance in the specialization. It then goes on to look at the detail of budget construction and the use to which budgets can be put.
To achieve this aim, a proper planning and co-ordination of different functions is undertaken. Administration and supervision of the operations are not insufficient in the organisation. It appears that actual costs are less than budgeted costs, so the harvesting operations are proceeding within the budget set and satisfactory. At best, a budget is an estimate; no one knows precisely what will happen in the future. The objective of this course is to help participants better understand the role and functioning of the budget control and to situate it within the larger context of management control. Budget provides only approximate estimates. Thus it becomes hard to determine the plans.
Budgets need to be revised from time to time for any change in plans, operating conditions, technology, etc. It tells the management as to where action is required for solving problems without delay. Some of the advantages of budgetary control are: 1. Management accountants also develop information systems that communicate strategic and operational priorities to managerial decision makers. Hide Inefficiencies: Budgets are sometimes used to hide inefficiencies. Badly handled budgetary control system with undue pressure and lack of regard to behavioural aspects may cause antagonism and may lower morale of the employees.
The budgets are mainly concerned with the finances of the business. Thus, an alternative way is to look in depth at one area of the business each year on a rolling basis, so that each sector does a zero base budget every five years or so. Budgetary control is a continuous process which helps in planning and coordination. A budget is only a tool and does not eliminate nor takes over the place of management. Both the techniques are of importance in their respective fields and are coinp1ementary to each other. · Feedback: constantly monitor performance.
Some variances can be identified to a specific department and it is within that department's control to take corrective action. Budgets are not only a means of control; they also help the managers in performing other functions of management. They show what happened last month or last quarter and no amount of analysis and discussion can alter that. Master Budget: The name itself indicates that it is the comprehensive budget of the business. Thus, the performance of the department heads and other executives is constantly monitored. It is dynamic in nature.
A budget cannot be substituted for management but should only be used by management for accomplishing managerial functions. Unless management acts quickly to override the budget, managers will continue to spend under their original budgetary authorizations, thereby rupturing any possibility of earning a profit. It can be shown as follows, take above example. · Economises management time by using the management by exception principle. They are a means in which to locate and or apprehend a person of intrest, suspect or known criminal and as suc … h, have no statutes of limitations. The comparison of actual performance with the pie-determined targets. It enhances the standing and credit of the undertaking with the government and the banks because an efficient technique of cost control is used.