I
Unit
s t ill03 :i Budgetary
t e s t it Control
l l I l
I it
A Budget is an instrumentofmanagementused as an aid in theplanning control
programming ofbusinessactivities itskeycharacteristicsinclude
it is afinancial and or quantitative statement
itisprepared approvedpriorto a definedperiodoftime
it outlinesthepolicytobepursuedduringthatperiod
itspurpose is toattain anobjective
ABudgetcovers income expenditure andthe employmentofcapital
Budgeting it istheprocessofdetermining implementing operating a budget The
mainemphasis is on theprovisionofresources tosupporttheplansthatare beingimplement
it means coordinating thecombined intelligence ofan entireorganisationinto a singleplanof
action Itisbasedonpastperformance historicaldata andgovernedbytherationaljudgeme
offactorsthatinfluencethefuturebusiness course
Objectives
ofBudgeting
a head sett argets
managementt olook
force
planning
coordination toensurealldepartmentsareworkingtowardsc ompany'sgoals
communication tocommunicateplanstargetstoalllevelsofmanagement
control toprovideabenchmarkagainst performanceismeasured
whichactual
motivation toprovidetargetstomotivatemanagers employees
performanceevaluation toprovideabasisfor evaluation
TypesofBudgets
PhysicalBudgets thesearebudgetsthatcontain information in quantitative terms
suchas salesBudget ProductionBudget MaterialUsageBudget etc
CostBudget these arebudgetsthatprovidecost information infinancialtermsfor
, variousbusinessfunctions ItincludesManufacturing Administrative andselling
Distribution CostBudgets
ProfitB udgets theseare budgetsthatfocuson ascertaining theprofitforaperiod It
combinesrevenue costbudgets
FinancialBudgets theseare budgetsthatfocusonfinancialposition flows
cash
ofthe
business itincludescashBudget capenBudget Budgeted Balance sheet
FlexibleBudgets these budgets are preparedbeforetheperiodbegins Itsmainpurpose
planning whatif analysis topredictcostsandprofits atdifferentlevelsofactivity
containsmultiplecolumns
forvariousscenarios 80 capacity 100 capacity etc
FlexedBudgets thereare budgetspreparedaftertheperiodendsbutbeforefinala nalysis
Theirmainpurposeis to controlbycomparingactualresultsagainsta target performance
evaluation andremovingtheeffect
of volume differences It containsonlyonecolumn
whichistheoriginalbudgetadjustedtoactualactivitylevel
Keyconsiderationsin Budgeting
1 QuantitativeAnalysis in Budgeting thisreferstotheuse numericaldata mathematical
of
modelsandstatisticaltechniquestoprepare budgets It includes
usinghistoricalsalesdatatoforecastfuturesales
calculatingrelationshipbetweencosts activitylevelstobuildflexiblebudgets
applyingstatisticalprobabilities to differentscenarios
usingeconomicformulastodetermineoptimalp roductionmix or reorderquantities
11 BehaviouralAspects in Budgeting thisis a critical
factorthatrecognisesthatbudgetsaffect
peoplesbehaviour andtheirbehaviouraffectsthe successofthebudget
participation ifmanagersparticipateinsettingbudgetstheyarelikelytobemotivatedtoachievethem
realistictargets too leadtofrustration
e asybudgetsr educemotivationwhereasimpossibleb udgets
feedback forl earning improvement
regular constructivefeedback
dysfunctionalb ehaviour ifbudgetisusedsolelytopunishitmayleadtonegativebehaviour
Unit
s t ill03 :i Budgetary
t e s t it Control
l l I l
I it
A Budget is an instrumentofmanagementused as an aid in theplanning control
programming ofbusinessactivities itskeycharacteristicsinclude
it is afinancial and or quantitative statement
itisprepared approvedpriorto a definedperiodoftime
it outlinesthepolicytobepursuedduringthatperiod
itspurpose is toattain anobjective
ABudgetcovers income expenditure andthe employmentofcapital
Budgeting it istheprocessofdetermining implementing operating a budget The
mainemphasis is on theprovisionofresources tosupporttheplansthatare beingimplement
it means coordinating thecombined intelligence ofan entireorganisationinto a singleplanof
action Itisbasedonpastperformance historicaldata andgovernedbytherationaljudgeme
offactorsthatinfluencethefuturebusiness course
Objectives
ofBudgeting
a head sett argets
managementt olook
force
planning
coordination toensurealldepartmentsareworkingtowardsc ompany'sgoals
communication tocommunicateplanstargetstoalllevelsofmanagement
control toprovideabenchmarkagainst performanceismeasured
whichactual
motivation toprovidetargetstomotivatemanagers employees
performanceevaluation toprovideabasisfor evaluation
TypesofBudgets
PhysicalBudgets thesearebudgetsthatcontain information in quantitative terms
suchas salesBudget ProductionBudget MaterialUsageBudget etc
CostBudget these arebudgetsthatprovidecost information infinancialtermsfor
, variousbusinessfunctions ItincludesManufacturing Administrative andselling
Distribution CostBudgets
ProfitB udgets theseare budgetsthatfocuson ascertaining theprofitforaperiod It
combinesrevenue costbudgets
FinancialBudgets theseare budgetsthatfocusonfinancialposition flows
cash
ofthe
business itincludescashBudget capenBudget Budgeted Balance sheet
FlexibleBudgets these budgets are preparedbeforetheperiodbegins Itsmainpurpose
planning whatif analysis topredictcostsandprofits atdifferentlevelsofactivity
containsmultiplecolumns
forvariousscenarios 80 capacity 100 capacity etc
FlexedBudgets thereare budgetspreparedaftertheperiodendsbutbeforefinala nalysis
Theirmainpurposeis to controlbycomparingactualresultsagainsta target performance
evaluation andremovingtheeffect
of volume differences It containsonlyonecolumn
whichistheoriginalbudgetadjustedtoactualactivitylevel
Keyconsiderationsin Budgeting
1 QuantitativeAnalysis in Budgeting thisreferstotheuse numericaldata mathematical
of
modelsandstatisticaltechniquestoprepare budgets It includes
usinghistoricalsalesdatatoforecastfuturesales
calculatingrelationshipbetweencosts activitylevelstobuildflexiblebudgets
applyingstatisticalprobabilities to differentscenarios
usingeconomicformulastodetermineoptimalp roductionmix or reorderquantities
11 BehaviouralAspects in Budgeting thisis a critical
factorthatrecognisesthatbudgetsaffect
peoplesbehaviour andtheirbehaviouraffectsthe successofthebudget
participation ifmanagersparticipateinsettingbudgetstheyarelikelytobemotivatedtoachievethem
realistictargets too leadtofrustration
e asybudgetsr educemotivationwhereasimpossibleb udgets
feedback forl earning improvement
regular constructivefeedback
dysfunctionalb ehaviour ifbudgetisusedsolelytopunishitmayleadtonegativebehaviour
