Module V- (Cost control techniques)
Budget
A financial plan expressed in terms of money for a period is called
budget.
Budgeting
A process of preparation, implementation and operation of budget is
called budgeting.
Budgetary control
Budgetary control is a system of using budget for planning and
controlling cost.
Objectives of budgetary control
To control activities.
To evaluate performance of managers.
To motivate managers.
To eliminate wastes.
To aid the planning of annual operation.
To coordinate activities of the organisation.
To communicate plans with responsibility centre managers.
Steps involved in budgetary control
Setting up of organisational goals.
Formulating plans for achieving goals.
Translating plans into budget.
Relating responsibility of executives to requirements of a policy.
Recording and reporting actual performance.
Continuous comparison of actual with budget.
Find out deviations.
Focusing attention on significant deviations.
Find out the reasons for deviations.
Presentation of information to the management.
Taking corrective action.
Revision of budgets.
, Essentials of budgetary control system
Support by top management
Formal organisation
Clear cut objectives
Budget committee
Adequate accounting system
Periodic reporting
Flexibility
Effective communication
Budget Manual
It is a written document which guides the executives in preparing
various budgets.
Budget period
A period for which a budget is prepared and employed is called
budget period.
Classification of budget
Classification according to time
Long term budget
A budget for a period of five to ten years is called long term budget.
Short term budget
A budget for a period of one to two years is called short term budget.
Current budget
A budget covers a period of one month is called current budget.
Classification according to flexibility
Flexible budget
It is a dynamic budget. It gives different budgeted cost for different
level of activity.
Fixed budget
It is a budget does not change with changes in the level of activity.
Classification according to function
Master budget
It is the summary of all budgets. It summarises sales, production,
purchases, fiancé, labour etc.
Budget
A financial plan expressed in terms of money for a period is called
budget.
Budgeting
A process of preparation, implementation and operation of budget is
called budgeting.
Budgetary control
Budgetary control is a system of using budget for planning and
controlling cost.
Objectives of budgetary control
To control activities.
To evaluate performance of managers.
To motivate managers.
To eliminate wastes.
To aid the planning of annual operation.
To coordinate activities of the organisation.
To communicate plans with responsibility centre managers.
Steps involved in budgetary control
Setting up of organisational goals.
Formulating plans for achieving goals.
Translating plans into budget.
Relating responsibility of executives to requirements of a policy.
Recording and reporting actual performance.
Continuous comparison of actual with budget.
Find out deviations.
Focusing attention on significant deviations.
Find out the reasons for deviations.
Presentation of information to the management.
Taking corrective action.
Revision of budgets.
, Essentials of budgetary control system
Support by top management
Formal organisation
Clear cut objectives
Budget committee
Adequate accounting system
Periodic reporting
Flexibility
Effective communication
Budget Manual
It is a written document which guides the executives in preparing
various budgets.
Budget period
A period for which a budget is prepared and employed is called
budget period.
Classification of budget
Classification according to time
Long term budget
A budget for a period of five to ten years is called long term budget.
Short term budget
A budget for a period of one to two years is called short term budget.
Current budget
A budget covers a period of one month is called current budget.
Classification according to flexibility
Flexible budget
It is a dynamic budget. It gives different budgeted cost for different
level of activity.
Fixed budget
It is a budget does not change with changes in the level of activity.
Classification according to function
Master budget
It is the summary of all budgets. It summarises sales, production,
purchases, fiancé, labour etc.
