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INTRODUCTION:
For effective running of a business, management must
know:

where it intends to go i.e. organizational objectives

how it intends to accomplish its objective i.e. plans

whether individual plans fit in the

organizational objective. i.e. coordination

overall

whether operations conform to the plan of

operations relating to that period i.e. control
Budgetary control is the device that a company
uses for all these purposes.
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WHAT IS A BUDGET?
A plan expressed in money. It is
prepared and approved prior to the
budget period and may show income,
expenditure and the capital to be
employed. May be drawn up showing
incremental effects on former
budgeted or actual figures, or be
compiled by Zero-based budgeting.
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WHAT IS BUDGETARY CONTROL?

Budgetary control is the use of the comprehensive system of
budgeting to aid management in carrying out its functions like
planning, coordination and control.
This system involves:
Division of organization on functional basis into different
sections known as a budget centre.
Preparation of separate budgets for each budget centre.
Consolidation of all functional budgets to present overall
organizational objectives during the forthcoming budget period.
Comparison of actual level of performance against budgets.
Reporting the variances with proper analysis to provide basis for
future course of action.
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CLASSIFICATION OF BUDGETS
ACCORDING TO
TIME

1.
2.
3.
4.

Long term budget

Short term budget
budget
Current budget
Rolling budget

ACCORDING TO
FUNCTION

ACCORDING TO
FLEXIBILITY

1. Sales budget
2. Production budget

1. Fixed budget
2. Flexible

3. Cost of Production budget

4. Purchase budget
5. Personnel budget
6. R & D budget
7. Capital Expenditure budget
8. Cash budget
9. Master budget

1. SALES BUDGET:
Sales budget is the most important budget based on which all the
other budgets are built up. This budget is a forecast of quantities
and values of sales to be achieved in a budget period.

2. PRODUCTION BUDGET:
Production budget involves planning the level of production which
in turn involves the answer to the following questions:
a. What is to be produced?
b.

When is it to be produced?

c.

How is it to be produced?

d.

Where is it to be produced?

3. COST OF PRODUCTION BUDGET:

This budget is an estimate of cost of output planned for a
budget period and may be classified into
Material Cost Budget
Labour Cost Budget
Overhead Cost Budget
4. PURCHASE BUDGET:
This budget provides information about the materials to be
acquired from the market during the budget period.

5. PERSONNEL BUDGET:
direct

This budget gives an estimate of the requirements of

labour essential to meet the production target.
This budget may be classified into
a. Labour requirement budget
b. Labour recruitment budget

6. RESEARCH AND DEVELOPMENT BUDGET:

This budget provides an estimate of expenditure to be
incurred on R & D during the budget period.
A R&D budget is prepared taking into consideration the
research projects in hand and new R & D projects to be taken
up.
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7. CAPITAL EXPENDITURE BUDGET:

This is an important budget providing for acquisition of
assets necessitated by the following factors:
a. Replacement of existing assets.
b. Purchase of additional assets to meet increased production
c. Installation of improved type of machinery to reduce
costs.
8. CASH BUDGET:
This budget gives an estimate of the anticipated receipts and
payments of cash during the budget period.
Cash budget makes the provision for minimum cash
balance to be maintained at all times.
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9. MASTER BUDGET:
CIMA defines this budget as The summary budget incorporating
its component functional budget and which is finally approved,
adopted and employed.
Thus master budget is a summary of all functional budgets in
capsule form available in one report.
10. FIXED BUDGET:
This is defined as a budget which is designed to remain
unchanged irrespective of the volume of output or turnover
attained.
This budget will, therefore, be useful only when the actual level of
activity corresponds to the budgeted level of activity.

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11. FLEXIBLE BUDGET:

CIMA defines this budget as one which, by recognising the
difference in behaviour between fixed and variable costs in
relation to fluctuations in output, turnover or other variable
factors such as number of employees, is designed to change
appropriately with such fluctuations.
12. PERFORMANCE BUDGETING:
These days budgets are established in such a way so that each
item of expenditure is related to specific responsibility centre
and is closely linked with the performance of that standard.

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13. ZERO BASE BUDGETING:

The zero base budgeting is not based on the incremental
approach and previous figures are not adopted as the base.
Zero is taken as the base and a budget is developed on the
basis of likely activities for the future period.
A unique feature of ZBB is that it tries to help
management answer the question, Suppose we are to start
our business from scratch, on what activities would we
spent out money and to what activities would we give the
highest priority?

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CONCLUSION:
Preparation of budgets is the first step in the budgetary control
system.
Implementation of budgets is the second phase.

But preparation and implementation of budgets alone

will not achieve much unless a comparison is made
regularly between the actual performance and the
budgeted performance.
Continuous and proper reporting makes this possible.
To ensure the success of budgetary control system, proper
follow up action has to be taken immediately for the reports
submitted.
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Introduction to Responsibility Accounting

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RESPONSIBILITY ACCOUNTING
Responsibility accounting involves the creation of responsibility
centres.
A responsibility centre may be defined as an organization unit for
whose performance a manager is held accountable.
Responsibility accounting enables accountability for financial results
and outcomes to be allocated to individuals throughout the
organization.
The objective is to measure the result of each responsibility center.
It involves accumulating costs and revenues for each responsibility
centre so that deviation from performance target (typically the
budget) can be attributed to the individual who is accountable for the
responsibility centre.

Classification of Responsibility Center

Cost Center

Revenue Center

Profit Center Investment Center

THANK YOU

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