NAME: SINGH.SHALINI.

RABINDRANATH

COLLEGE: G.M.MOMIN WOMENS COLLEGE RAIS HIGH SCHOOL CAMPUS, THANE ROAD,BHIWANDI-421302

SUBJECT; ADVANCED COST ACCOUNTING

TOPIC NAME: BUDGETARY CONTROL

STD:

M.COM (PART-1)

ROLL NO: 42

PROF

NANZEEN momin

ACKNOWLEDGEMENT
In this particular project report I have taken the topic of the BUDEGTARY CONTROL .For this, I have collected, Analyzed the information from various websites and by referring deferent economics books and also taken the help Of my teachers, professors and my friends. I would like to say my heart full thanks to all of them who are given their valuable guidelines and suggestions especially to my subject professor NANZEEN MOMIN

Yours sincerely SHALINI.R.SINGH

Certificate

This is to certify that mis SINGH SHALINI RABINDRANATH has successfully completed her project Work entitled BUDGETARY CONTROL. In partial fullfilment to M.COM-PART-1 for the acamedic year 2103-2014. She has worked under our guidelines & directions.

Project Guide

course-co-ordinator

Principal

External-examiner

Declaration

I declare that this project report entitled is BUDGETARY CONTROL original & bonafied work Of my own in the partial fullfilment of the requirement of the award Degree of M.COM .

And submitted to the Dept. of commerce prof NANZEEN MOMIN .

The data has been collected by me is truly authentic and Containg true & complete infromation.

Name of the topic

Budgetary control

Index
Sr.no 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 19 TOPIC NAME Meaning of budget MEANING OF BUDGETING MEANING OF BUDGETARY CONTROL Definition of budgetary control Benefits of budgetary control Advantages of budgetary control Disadvantages of budgetary control Objectives of budgetary control Features of budgetary control TECHINES OFBUDGETARY CONTROL ROLE OF BC IN NON PROFIT ORGANSTION METHODS OF BUDGETARY CONTROL IMPORTANCE OF BUDGETARY CONTROL Standard costing v/s BUDGETARY CONTROL BUDGETING CONTROL PROCESS AN OVERVIEW PROCESS TYPES OF TRADITIONAL CONTROL TECHNIQUES DIAGRAM TYPES OF MODERN CONTROL TECHNIQUIES CONCLUSION BIBLIOGRAPHY Pg.no. 1 2 2 3 3 5 7 8 11 12 14 17 19 23 26 31 32 34 36

1 . INTRODUCTION

MEANING OF BUDGET Budget is a document that forecasts the financial results and financial position of a company for one or more future periods. At the most minimal level, a budget contains an estimated income statement for future periods. A more complex budget contains a sales forecast, the cost of goods sold and expenditures needed to support the projected sales, estimates of working capital requirements, fixed asset purchases, a cash flow forecast, and an estimate of financing needs. This should be constructed in a top-down format, so a master budget contains a summary of the entire budget document, while separate documents containing supporting budgets roll up into the master budget, and provide additional detail to users Many budgets are prepared on electronic spreadsheets, though larger businesses prefer to use budget-specific software that is more structured and so is less liable to contain computational errors.A prime usethe budget is as a performance baseline for the measurement of actual results. It can be misleading to do so, since budgets typically become

2 increasingly inaccurate over time, resulting in large variances that have no basis in actual results. To reduce this problem, some companies periodically revise their budgets to keep them closer to reality, or only budget for a few periods into the future, which gives the same result. Another option that sidesteps budgeting problems is to operate without a budget. Doing so requires an ongoing short-term forecast from which business decisions can be made, as well as performance measurements based on what a peer group is achieving. Though operating without a budget can at first appear to be too slipshod to be effective, the systems that replace a budget can be remarkably effective. Budgeting: The act of preparing budgets is called budgeting. In the words of Batty, the entire process of preparing the budgets is known as budgeting.

Meaning of Budgetary Control: Budgetary control is a system of controlling costs through preparation of budgets. Budgeting is thus only a part of budgetary control. According to CIMA, Budgetary control is the establishment of budgets relating the responsibilities of executives of a policy & the continuous comparison of the actual with the budgeted results, either to secure by individual actions the objective of that policy to provide basis for its revision.
Definition of Budgetary Control:

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 objectives of that policy or to provide a firm basis of its revision.

3 Or in simple words, budgetary control is implementing budgets and making managers responsible for implementing it.

BENEFITS OF BUDGETARY CONTROL

1) Maximization of Profits Budgetary control in an organization leads to maximization of profits. Budgetary control involves fixing of different budgets concerning capital and revenue expenditure thus making the employees alert in the organization about costs and performance. The money is incurred on the important activities and resource is utilized optimally resulting to profit maximization.

2) Proper Planning, Co-ordination & Control Budgetary control aims at proper planning, coordination and control in the organization. It sets standards of costs, i.e. budgets, and compares it with the actual results. Any deviation between the budgeted figures and the actual performance is known as variance. A negative variance means that actual cost exceeds the budgeted cost. It is an alarming situation for the management. Through budgetary control, management becomes aware about the performance of the enterprise and takes necessary corrective actions. It sets proper coordination among different departments in the organization so as to achieve the budgeted targets.

3) To Use the Forecasting Techniques Budgetary control technique helps management use the forecasting techniques. There are three departments in the organization that work together for estimating

4 and forecasting cost and expenditure. The accounting department provides previous years' data, thedepartment of statistics provides tools and techniques of forecasting and the management department calculates the future projections of revenues and expenditures. Budgetary control technique helps these departments in planning budgets and coordinates with each other for better control on the operations. 4) Effective Utilization of Company's resources

Budgetary control eliminates misuse of money and company funds. Budgetarycontrol involves fixing of various budgets and if any discrepancies arise, the responsible person will be accountable for his action. For example, a company selling mobile phones has fixed the target of selling 4 million units. The target is decided after consulting with the sales manager. After one year, if sales are just 1 million units, the sales manager must explain the shortfall in the number of units sold in the market below the budgeted level.

5) Incentive Schemes to the Employees Budgetary control systems also provide various financial and non-financial incentives to the employees of the company for exceeding the budgeted level of performance. The comparison of budgeted and actual performance will facilitate the use of such schemes.

5 ADVANTAGES OF BUDGETARY CONTROL

The advantages of budgeting include:

Planning orientation. The process of creating a budget takes management away from its short-term, day-to-day management of the business and forces it to think longer-term. This is the chief goal of budgeting, even if management does not succeed in meeting its goals as outlined in the budget at least it is thinking about the company's competitive and financial position and how to improve it.

Profitability review. It is easy to lose sight of where a company is making most of its money, during the scramble of day-to-day management. A properly structured budget points out what aspects of the business produce money and which ones use it, which forces management to consider whether it should drop some parts of the business, or expand in others.

Assumptions review. The budgeting process forces management to think about why the company is in business, as well as its key assumptions about its business environment. A periodic re-evaluation of these issues may result in altered assumptions, which may in turn alter the way in which managements decides to operate the business Performance evaluations. You can work with employees to set up their goals for a budgeting period, and possibly also tie bonuses or other

incentives to how they perform. You can then create budget versus actual reports to give employees feedback regarding how they are progressing toward their goals. This approach is most common with financial goals, though operational goals (such as reducing the product rework rate) can also be added to the budget for performance appraisal purposes. This system of evaluation is called responsibility accounting.

Funding planning. A properly structured budget should derive the amount of cash that will be spun off or which will be needed to support operations. This information is used by the treasurer to plan for the company's funding needs.

Cash allocation. There is only a limited amount of cash available to invest in fixed assets and working capital, and the budgeting process forces management to decide which assets are most worth investing in.

Bottleneck analysis. Nearly every company has a bottleneck somewhere, and the budgeting process can be used to concentrate on what can be done to either expand the capacity of that bottleneck or to shift work around it.

DISADVANTAGES OF BUDGETARY CONTROL

The disadvantages of budgeting include:

Time required. It can be very time-consuming to create a budget, especially in a poorly-organized environment where many iterations of the budget may be required. The time involved is lower if there is a well-designed budgeting procedure in place, employees are accustomed to the process, and the company uses budgeting software. The time requirement can be unusually large if there is a participative budgeting process in place, since such a system involves an unusually large number of employees.

Gaming the system. An experienced manager may attempt to introduce budgetary slack, which involves deliberately reducing revenue estimates and increasing expense estimates, so that he can easily achieve favorable variances against the budget. This can be a serious problem, and requires considerable oversight to spot and eliminate.

Blame for outcomes. If a department does not achieve its budgeted results, the department manager may blame any other departments that provide services to it for not having adequately supported his department.

Expense allocations. The budget may prescribe that certain amounts of overhead costs be allocated to various departments, and the managers of those departments may take issue with the allocation methods used.

8 Spend it or lose it. If a department is allowed a certain amount of expenditures and it does not appear that the department will spend all of the funds during the budget period, the department manager may authorize excessive expenditures at the last minute, on the grounds that his budget will be reduced in the next period unless he spends all of the amounts authorized in the current budget.

Only considers financial outcomes. Budgets are primarily concerned with the allocation of cash to specific activities, and the expected outcome of business transactions - they do not deal with more subjective issues, such as the quality of products or services provided to customers. These other issues can be stated as part of the budget, but this is not typically done .

OBJECTIVES OF BUDGETARY CONTROL

The objectives of budgeting are as follows:

Provide structure. A budget is especially useful for giving a company guidance regarding the direction in which it is supposed to be going. Thus, it forms the basis for planning what to do next. A CEO would be well advised to impose a budget on a company that does not have a good sense of direction. Of course, a budget will not provide much structure if the CEO promptly files away the budget and does not review it again until the next year. A budget only provides a significant amount of structure when management refers to it constantly, and judges employee performance based on the expectations outlined within it.

Predict cash flows. A budget is extremely useful in companies that are growing rapidly, that have seasonal sales, or which have irregular sales patterns. These companies have a difficult time estimating how much cash they are likely to have in the near term, which results in periodic cashrelated crises. A budget is useful for predicting cash flows, but yields increasingly unreliable results further into the future. Thus, providing a view of cash flows is only a reasonable budgeting objective if it covers the next few months of the budget.

Allocate resources. Some companies use the budgeting process as a tool for deciding where to allocate funds to various activities, such as fixed asset purchases. Though a valid objective, it should be combined with capacity constraint analysis (which is more of an industrial engineering function than a financial function) to determine where resources should really be allocated.

Model scenarios. If a company is faced with a number of possible paths down which it can travel, then you can create a set of budgets, each based on different scenarios, to estimate the financial results of each strategic direction. Though useful, this objective can result in highly unlikely results if management lets itself become overly optimistic in inputting assumptions into the budget model.

Measure performance. A common objective in creating a budget is to use it as the basis for judging employee performance, through the use of variances from the budget. This is a treacherous objective, since employees attempt to modify the budget to make their personal objectives easier to achieve (known as budgetary slack)

Planning: A budget provides a detailed plan of action for a business over definite period of time. Detailed plans relating to production, sales, raw material requirements, labor needs, advertising and sales

10

promotion performance, research and development activities, capital additions etc., are drawn up. By planning many problems are anticipated long before they arise and solutions can be sought through careful study. Thus most business emergencies can be avoided by planning. In brief, budgeting forces the management to think ahead, to anticipate and prepare for the anticipated conditions.

Co-ordination: Budgeting aids managers in co-coordinating their efforts so that objectives of the organization as a whole harmonies with the objectives of its divisions. Effective planning and organization contributes a lot in achieving coordination. There should be coordination in the budgets of various departments. For example, the budget of sales should be in coordination with the budget of production. Similarly, production budget should be prepared in co-ordination with the purchase budget, and so on.

Communication: A budget is a communication device. The approved budget copies are distributed to all management personnel which provides not only adequate understanding and knowledge of the programmers and policies to be followed but also gives knowledge about the restrictions to be adhered to. It is not the budget itself that facilitates communication, but the vital information is communicated in the act of preparing budgets and participation of all responsible individuals in this act.

Motivation: A budget is a useful device for motivating managers to perform in line with the company objectives. If individuals have actively participated in the preparation of budgets, it act as a strong motivating force to achieve the targets.

11

Control: Control is necessary to ensure that plans and objectives as laid down in the budgets are being achieved. Control, as applied to budgeting, is a systematized effort to keep the management informed of whether planned performance is being achieved or not. For this purpose, a comparison is made between plans and actual performance. The difference between the two is reported to the management for taking corrective action.

Performance Evaluation: A budget provides a useful means of informing managers how well they are performing in meeting targets they have previously helped to set. In many companies, there is a practice of rewarding employees on the basis of their achieving the budget targets or promotion of a manager may be linked to his budget achievement record

FEATURES OF BUDGETARY CONTROL

1 .Objectives: Determining the objectives to be achieved, over the budget period, and the policy(is) that might be adopted for the achievement of these ends. 2 .Activities: Determining the variety of activities that should be undertaken for achievement oft he objectives.

12 3. Plans: Drawing up a plan or a scheme of operation in respect of each class of activity, in physical a well as monetary terms for the full budget period and its parts. 4. Performance Evaluation: Laying out a system of comparison of actual performance by each person section or department with the relevant budget and determination of causes for the discrepancies, if any. 5. Control Action: Ensuring that when the plans are not achieved, corrective action is taken And when corrective actions are not possible, ensuring that the plans are revised and objective achieved.

TECHNIQUES OF BUDGETARY CONTROL

In budgetary control, we use following techniques: 1. Variance Analysis First of all, budgets of different departments are made with estimated figures. After this, it is compared with actual accounting figures. In this technique, we find variances. These variances may be favorable and unfavorable. For example, we have recorded actual quantity and cost of our raw material, after this, it is compared with budgeted value of raw material quantity and cost. Result of this will be material cost variance. Like this, we will find the variance of labor cost and overhead cost. This technique of budgetary control is helpful for reducing the cost of business. 2. Responsibility Accounting Responsibility accounting is also a good budgetary control technique. In this technique, we create cost centre, profit centre and investment centre. All these centers are just like department of any organization. Now, we classify our all employees work on the basis of their centers. Every employees responsibility is fixed on the basis of his target or performance. After this, we record their performance manually. Then, we fix their accountability. For example, we have

13 fixed the target of sales department is of Rs. 5 Laky per month. For this, we have appointed expert salesman. But sales departments total per month sales is Rs. 3 Laky which is Rs. 2 Laky less than our sales department target. Through this budgetary control, we can take the decision of promotion and demotion of our employees or find other reasons if we do not obtain our targets. 3. Adjustment of Funds In this technique of budgetary control, top management takes the decision to adjust fund from one project to other project. For example, when Govt. of India makes budget for allocation of its total fund in different projects, at that time, it has to take decision for adjustment of funds. For example, railway department needs money for specific new project. If Govt. of India sees that project of IT has excess money, then it can be utilized for railway budget. In adjustment of funds, we also use fund flow analysis. We can also decrease misuse of funds by forecasting proper amount. 4. Zero Base Budgeting (ZBB) These days zero base budgeting is popular technique of budgetary control. In this technique, every next year budget is made on nil bases. It can only be possible, if your estimated income will be equal to the estimated expenses. At that time, difference between estimated income and estimated expenses will be zero. If there is any excess, it will be adjusted. For example, if your estimated revenue is more than estimated expenses, you need to increase the amount or allocate in new estimated expenses. With this, nothing will go to next year. With zero base budgeting technique, you can control on every money which you have to spend. Its base will be the current year income only.

14 The Role of Budgeting CONTROL in the Nonprofit Sector

Every nonprofit organization has a crucial mission and an important purpose in the community. But it may never be able to achieve its lofty objectives without a well-defined action plan, including timelines for implementation and a budget. Some nonprofits ask why they need to have a budget. After all, if they have held a strategic planning retreat, they know what they want to achieve. They believe they are all set to move forward and they are unsure of the additional advantages of going through the process of developing a budget. Further, they may have some concerns over being constrained by the numbers and the formality of the process or fear of being held accountable by the results of actual versus budgeted data.

Those groups that do not want to be accountable, that do not believe that working within the limitations of a formal budget; are the very groups that struggle to stay afloat, especially when times are tough. What they may not realize is that having a budget gives structure and substance to the organizations plans. The budget makes a strong statement about the groups intentions as it indicates what the nonprofit expects to tackle in the coming year, or years. As importantly, it provides a way to monitor progress. When an item is accounted for in the budget, it becomes a tangible representation of the organizations goals and an acknowledgment that resources will be expended to support it. It demonstrates a proactive, thoughtful, deliberate approach to critical decisionmaking instead of a less formalized process that is forced to react to every new idea without the benefit of having planned for the circumstance.

15 By going through the process of writing a budget, the organization will be faced with making some tough decisions. As a result of drafting the budget, the leadership will be expected to make educated assertions regarding the costs of its programming and services, especially recognizing the real limits that exist on staff and volunteer availability, special skills, and other necessary resources. The budget plays a key role, forcing the organization to prioritize its activities so as to determine those that are most critical for fulfilling its mission. In addition to deciding on how to spend their revenue, a budget provides the documentation that helps nonprofits choose the most efficient measures for raising money.

Without a budget there can be chaos because there is no other way to reasonably decide in advance which ideas or programs will be pursued and how much will be allocated to promote them. Without a budget there is no way to determine if the financial benchmarks are being met. Without a budget to follow, overspending or under spending is likely to occur with potential serious consequences.

The budget should not be written in isolation, but rather, it will be more effective if taken into consideration along with other planning tools and management information. Some nonprofits, much like for-profit entities, get so immersed in drafting the budget that they lose sight of what the process is all about! Instead of seeing the budget as a financial instrument that can help to manage operations and predict income, they see it as a project to be completed, which, once finalized, can be stored in a drawer until year-end rolls around.

16 Nothing could be further from the truth. The budget is a constantly changing document, and one that must be referred to, and reflected on, regularly. It is a good approach to be as flexible as possible. Rather than abandon a sound budget plan when an unforeseen situation arises, the organization should instead be able to handle the change within the structure of the budget.

To be realistic it will have to be reviewed, and perhaps amended, as the situation requires. This years golf outing may not produce the targeted number of key sponsors as in the past, while the Gala attracts an unprecedented record crowd. Programs and services that drew few users/participants last year may become necessities in todays tougher economy. Whatever the issue, the role the budget plays is to serve as a guideline - but one that requires fine tuning and flexibility along the way.

It is a good idea to always remain flexible. The one thing that is constant is change, and sometimes budgets must be changed when expectations are not met. Rather than abandon a sound budget plan, when an emergency or opportunity arises, an organization should be able to handle the change in an orderly fashion.

17 METHODS OF CONTROLLING BUDGETS

1)Budget Center According to the Department of Agriculture and Consumer Protection, the first technique for controlling your budget is to set up a central budget office. You need to set up a department that creates and monitors your annual budget, provides monthly and quarterly reports, approves expenditures and monitors cash flow. 2)Budget Officer When you put one person in charge of your budget center, you create accountability. You can go to your budget officer with questions and concerns, and you can make that person responsible for balancing your budget and notifying you of shortfalls, cost overruns and unfilled purchase requests. 3)Budget Manual All of your budget procedures and policies belong in one manual. This document should detail who is responsible for various budget functions, such as approving expenditures, scheduling accounts receivable, collecting overdue bills, paying bills, making deposits and creating invoices. The manual should show how work flows through your budgeting department. For example, indicate how a department manager fills out an expenditure request, who it goes to in the budget center, all of the approvals needed and who sends it back to the department head. 4)Variance Analysis All departmental budgets are estimates. At the end of each period, such as a quarter, conduct a variance analysis. Compare what the department actually spends with what the department budget called for. Determine the reasons for budget overruns, and consider reducing the budget for departments that consistently spend less than their budgets indicated they would need.

18 5)Budgeting Profit Consider implementing zero-based budgeting. This term means that income must match expenditures. If you do not include profit as an expenditure, you will have the tendency to spend all of your income on materials, supplies, overhead and payroll. By using zero-based budgeting with an expense built in for profits, you place an emphasis on success rather than mere survival 6)Goal Setting Before you can write a budget plan, you must set goals for your budget. These are recurring operational goals, such as keeping the lights turned on in the building throughout the year, and strategic goals, such as introducing a new product in the next year. Goals communicate to managers what your business must achieve in the coming year. You can also write general guidelines for how managers will use their spending habits to achieve your company's goals and how you will hold them accountable for results. 7)Planning A business owner can control the level of spending in his company using budgeting plans. Three kinds of plans serve as a basis for budgetary control. A month-to-month plan projects spending for the year, and a quarter-to-quarter budget assists in preparing financial statements. A three-year budget plan ensures that you manage expenditures over time. You must adjust the long-term budget based on each yearly budget plan. 8)Monitoring Process Small businesses control spending by using their plans as a tool throughout the year. They look at the real monthly levels of income and expenses and compare that to the levels estimated in their annual budget. One form of budgetary control involves controlling spending by quarter. For example, a manager receives $2,000 per quarter for office supplies and gets a purchase order for that amount. Once her department's office supply expenditures meet the $2,000 limit, she must wait until the next quarter for another $2,000 purchase order to become available.

19 9)Auditing Expenditures and Results It is not sufficient to determine if each program area spends according to its budgeted levels. There are more budgetary controls to try. Audit the expenditures in different budget lines, such as supplies, and identify instances of waste. Study the results achieved based on how a manager spent his budget over the last year. Measure the performance of an overall budget policy. If in the next year expenses will be higher than projected in the long-term budget, you must adjust your budget goals, reduce the next yearly budget and improve your plan to control costs.

Importance of Budgetary Control

1. To Use the Forecasting Techniques

It is the importance of budgetary control that with this, we can use the forecasting techniques. Three departments work hard for calculating best estimation of future. Accounting department provides old data. Statistical department provides the tools and techniques of forecasting like probability, time series other sampling methods. Management department uses both department

20 services to estimate the expenditures and revenue of business under the normal conditions of business. So, no department says anything wrong in making of budget. So, it is necessary for business to use budgetary control techniques.

2. Fix the Responsibility of Departments

Department's scientific name is cost center. Manager makes budget and show the target of company and employees are given the powers to perform these targets. After checking the variance in budget through budgetary control process, manager can fix the responsibility of each department and its employees in a particular cost center.

3. Effective Utilization of Company's resources

Company can only effective use its resources, if someone stops misuse of money and fund of company. If budgetary control is used in company, at that time, no action will be taken before making budget. Responsible personal of company will be accountable for his action. Suppose, company has fixed the target of company's annual Sale is $ 40, 00,000 after participating sales manager in the setting of this sale budget. Now, after one year, if sale is just $ 1, 00,000. This sale manager must say what is the reason for not selling the product up to standard level of sale.

21 4. Excel yourself

After using budgetary control techniques in your business, you will definitely learn the skills of excel yourself because we all know that a budget is based on estimates, it may or may not be true. But continually practice of making good budget and apply in organization, manager can learn skills and experience for increasing the efficiency in every work of company. Meaning of this, manager will get positive approach through budgetary control.

Essentials of Effective Budgeting:

A budgetary control system can prove successful only when certain conditions and attitudes exist, absence of which will negate to a large extent the value of a budget system in any business. Such conditions and attitudes which are essential for effective budgeting are as follows: 1. Support of Top Management: If the budget system is to be successful, it must be fully supported by every member of the management and the impetus and direction must come from the very top management. No control system can be effective unless the organization is convinced that the top management considers the system to be import. 2. Participation by Responsible Executives: Those entrusted with the performance of the budgets should participate in the process of setting

22 3. the budget figures. This will ensure proper implementation of budget programmers. 4. Reasonable Goals: The budget figures should be realistic and represent reasonably attainable goals. The responsible executives should agree that the budget goals are reasonable and attainable. 5. Clearly Defined Organization: In order to derive maximum benefits from the budget system, well defined responsibility centers should be built up within the organization. The controllable costs for each responsibility centers should be separately shown. 6. Continuous Budget Education: The best way to ensure the active interest of the responsible supervisors is continuous budget education in respect of objectives, potentials & techniques of budgeting. This may be accomplished through written manuals, meetings etc., whereby preparation of budgets, actual results achieved etc., may be discussed. 7. Adequate Accounting System: There is close relationship between budgeting and accounting. For the preparation of budgets, one has to depend on the accounting department for reliable historical data which primarily forms the basis for many estimates. The accounting system should be so designed so as to set up accounts in terms of areas of managerial responsibility. In other words, responsibility accounting is essential for successful budgetary control. 8. Constant Vigilance: Reports comparing budget and actual results should be promptly prepared and special attention focused on significant exceptions i.e. figures that are significantly different from those expected. 9. Maximum Profit: The ultimate object of realizing the maximum profit should always be kept uppermost. 10. Cost of the System: The budget system should not cost more than it is worth. Since it is not practicable to calculate exactly what a budget system is worth, it only implies a caution against adding expensive refinements unless their value clearly justifies them.

23 11. Integration with Standard Costing System: Where standard costing system is also used, it should be completely integrated with the budget programmed, in respect of both budget preparation and variance analysis.

Standard Costing VS. Budgetary Control

Standard costing and budgetary control have the common objective of cost control by establishing pre-determined targets. The actual performances are measured and compared with the pre-determined targets for control purposes. Both the techniques are of importance in their respective fields and are complementary to each other.

Points of Similarity: There are certain basic principles which are common to both standard costing and budgetary control. These are: 1. The establishment of pre-determined targets of performance 2. The measurement of actual performance

24 3. The comparison of actual performance with the pre-determined targets. 4. The analysis of variances between the actual and the standard performance 5. To take corrective measures, where necessary. Points of Difference: In spite of so much similarity between standard costing and budgetary control, there are some important differences between the two, which are as follows:

Scope

Standard Costing Standard costs are developed mainly for the manufacturing function and sometimes also for making and administration functions Standard costing is intensive in application as it calls for detailed analysis of variances

Intensity

Relation accounts

to In standard costing, variances are usually revealed through accounts

Usefulness

Standard costs represent realistic yardsticks and, are therefore, more useful for controlling and reducing costs.

Budgetary Control Budgets are compiled functions of the business such as sales, purchase, production, cash, capital expenditure, research & development, etc., Budgetary control is extensive in nature and the intensity of analysis tends to be much less than that in standard costing. In budgetary control, variances are normally not revealed through accounts and control is exercised by statistically putting budgets and actuals side by side. Budgets usually represent an upper limit on spending without considering the effectiveness of the expenditure in terms for output.

Basis

25

Projection

Standard cost are usually established after considering such vital matters as production capacity, methods employed and other factors which require attention when determining an acceptable level of efficiency. Standard cost is a projection of cost accounts

Budgets may be based on previous years costs without any attention being paid to efficiency.

Budget is a projection of financial accounts.

Budgeting control process an overview Process

The process of budget formulation, in ONGC is a detailed, exhaustive and voluminous exercise but it provides flexibility to the managers in their operations and at the same time makes them accountable for cost of operations. The exercise normally starts after completion of Annual Accounts in order to have actual utilization of budget and actual cost of various activities. It is envisaged to have the Board approval for the Budget Outlays of RE of the current period and Before the next Financial Year by the end of September/ October of every year. In line with the internationally accepted accounting methods followed by the Company, expenditure is booked to various activities viz. survey, exploratory drilling and development drilling and budget is presented in terms of these activities, besides capital expenditure. The process of activity cost build up is done at each asset / basin by accepting the allocation cost from various services within the work centre and transfer of cost from one work centre to another to depict the

26 activities in the geographical location where the physical activities are accounted as per requirement. At the corporate level, budget allocations to the assets, basins, services, institutes and corporate functions are made on the basis of physical work programmed and overall resource generations. The assets/basins, institutes and service chiefs have operational flexibility to provide for the budget items and reappropriation within the budget items. The budget is prepared initially based on the resources requirements under natural heads and correspondingly financial outlays under various activities are prepared using the budget software, separated into planned and non-planned expenditure. Financial Outlays corresponding to the approved Physical Targets are prepared based on per unit cost of the inputs required to be used in accomplishing the activities..

Types of Traditional Control Techniques

The ten types of traditional techniques of controlling are discussed below:-

1. Direct Supervision and Observation

'Direct Supervision and Observation' is the oldest technique of controlling. The supervisor himself observes the employees and their work. This brings him in direct contact with the workers. So, many problems are solved during supervision. The supervisor gets first hand information, and he has better understanding with the workers. This technique is most suitable for a small-sized business.

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2. Financial Statements All business organizations prepare Profit and Loss Account. It gives a summary of the income and expenses for a specified period. They also prepare Balance Sheet, which shows the financial position of the organization at the end of the specified period. Financial statements are used to control the organization. The figures of the current year can be compared with the previous year's figures. They can also be compared with the figures of other similar organizations. Ratio analysis can be used to find out and analyze the financial statements. Ratio analysis helps to understand the profitability, liquidity and solvency position of the business. 3. Budgetary Control A budget is a planning and controlling device. Budgetary control is a technique of managerial control through budgets. It is the essence of financial control. Budgetary control is done for all aspects of a business such as income, expenditure, production, capital and revenue. Budgetary control is done by the budget committee.

28 4. Break Even Analysis

Break Even Analysis or Break Even Point is the point of no profit, no loss. For e.g. when an organization sells 50K cars it will break even. It means that, any sale below this point will cause losses and any sale above this point will earn profits. The Break-even analysis acts as a control device. It helps to find out the company's performance. So the company can take collective action to improve its performance in the future. Break-even analysis is a simple control tool.

5. Return on Investment (ROI)

Investment consists of fixed assets and working capital used in business. Profit on the investment is a reward for risk taking. If the ROI is high then the financial performance of a business is good and vice-versa. ROI is a tool to improve financial performance. It helps the business to compare its present performance with that of previous years' performance. It helps to conduct inter-firm comparisons. It also shows the areas where corrective actions are needed.

6. Management by Objectives (MBO)

MBO facilitates planning and control. It must fulfill following requirements :1. Objectives for individuals are jointly fixed by the superior and the subordinate. 2. Periodic evaluation and regular feedback to evaluate individual performance. 3. Achievement of objectives brings rewards to individuals.

29 7. Management Audit

Management Audit is an evaluation of the management as a whole. It critically examines the full management process, i.e. planning, organizing, directing, and controlling. It finds out the efficiency of the management. To check the efficiency of the management, the company's plans, objectives, policies, procedures, personnel relations and systems of control are examined very carefully. Management auditing is conducted by a team of experts. They collect data from past records, members of management, clients and employees. The data is analyzed and conclusions are drawn about managerial performance and efficiency.

8. Management Information System (MIS)

In order to control the organization properly the management needs accurate information. They need information about the internal working of the organization and also about the external environment. Information is collected continuously to identify problems and find out solutions. MIS collects data, processes it and provides it to the managers. MIS may be manual or computerized. With MIS, managers can delegate authority to subordinates without losing control.

9. PERT and CPM Techniques

Programmed Evaluation and Review Technique (PERT) and Critical Path Method (CPM) techniques were developed in USA in the late 50's. Any programmed consists of various activities and sub-activities. Successful completion of any activity depends upon doing the work in a given sequence and in a given time. CPM / PERT can be used to minimize the total time or the total cost required to perform the total operations.

30 Importance is given to identifying the critical activities. Critical activities are those which have to be completed on time otherwise the full project will be delayed. So, in these techniques, the job is divided into various activities / sub-activities. From these activities, the critical activities are identified. More importance is given to completion of these critical activities. So, by controlling the time of the critical activities, the total time and cost of the job are minimized.

10. Self-Control

Self-Control means self-directed control. A person is given freedom to set his own targets, evaluate his own performance and take corrective measures as and when required. Self-control is especially required for top level managers because they do not like external control. The subordinates must be encouraged to use self-control because it is not good for the superior to control each and everything. However, self-control does not mean no control by the superiors. The superiors must control the important activities of the subordinates.

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MODERN TECHINQUES OF CONTROLLING

1. MIS

MIS means management information system . In this system , raw data is collected from direct or indirect sources and then after classification of data , different analysis is rendered by company managers and after this company managers provide information about favourable and unfavourable position of company's different plannings . MIS is very important technique and it is used very high level after invention of computer and Internet .

2. Management audit system

This is very simple type of auditing which is done by chartered accountant and company manager can used it as technique of controlling management . Managers establish their relations with CA of company and after discuss they make system of internal management audit in which company CA and his staff audit at spot and check the efficiency and correctness of plan and its implementation on staff of company .

3. Return on investment Managers and its name are cost center , profit center and investment center . After this every center is responsible for their cost . Main aim of making these centers is to increase profit , increase return on investment and decrease cost of production . Different budgetary cost are set in first and the each centre's actual cost is counted

33 and recorded , if the actual cost of each center is less than budgeted cost , then it means that center has perform his duty better.

4. Responsibility accounting
Responsibility accounting is that controlling technique in which different responsibility centres are created by company .

COMMITTEE OF BUDGETARY CONTROL The Committee on Budgetary Control (CONT) is a committee of the European Parliament with 30 permanent members. It can be seen as the internal 'political watchdog' of the European Union that identifies undesirable developments of its institutions and other bodies and then tries to elaborate constructive suggestions of improvement.

Return on investment meas capacity of earning profit on total investment which is invested by company . It is very scientific technique of controlling . Even Google is using also this technique for his google AdWords project control.

Responsibilities of the committee The Committee on Budgetary Control is responsible for the control of the implementation of the Union's budget, meaning that the taxpayers' money is spent efficiently, effectively and according to EU law. In close cooperation with the Court of Auditors, it audits the accounts of EU Institutions and suggests improvements in order to ensure sound financial management. It considers fraud and irregularities in the budget implementation, and suggests measures aimed at

34 preventing and prosecuting such cases. In this context, it liaises with the Union's Anti-Fraud Office OLAF to strengthen the fight against fraud and corruption. The discharge procedure is the main tool at hand of the parliamentarians in the committee. During this procedure it scrutinises the implementation of the EU Budget by all actors involved, i.e. inter alia the Commission, Parliament, other institutions and Agencies on the basis of the yearly annual report of the European Court of Auditors. For this purpose, the Committee organizes hearings to which it invites members of the examined bodies. The parliamentarians then transmit detailed questions about the activities and the performance of the respective proceeding working year (x, e.g. 2011). This process usually starts in October of the following year (x+1, e.g. 2012) and is then voted in the Committee in March and in the Plenary in April of the next following year (x+2, e.g. 2013).

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CONCLUSION Budgetary control is nothing but system of controlling cost by preparing budgets.It has become important part of our life.It is not needed in the planning of our country but in each everys one life,business,organsition i.e. in each and every field,due to the growing inflation day by day. To control the budgets there are various techniques that can be applied in our daily transactions.Like proper planning,organisinsg.there are many organsition who control the budgets. The advantages of budgetary control is that the cost can be controlled and can be reduced to the certain extent. By organsing the budgetary committee the costof the organsition can be controlled and the business organsition balance sheet can show true and fair view of the balance sheet.

36 By doing these budgetary control the actual cost can be compared with the cost budget which has been made earlier.from all the above explanation we can say that budgetary control is essentials in each and every field of our work.

37 BIBLIOGRAPHY

WWW.PDF.BUDGETARY CONTROL.COM WWW.GOOGLE.COM