Budgetary Control

Budget
A budget is the monetary expression of business
plans and policies to be pursued in the future
period of time.
Budgeting is an estimate prepares in advance of
the period to which it applies.
A budget is prepared to have effective utilization
of funds and for the realization of objectives as
efficiently as possible.
Budgeting is a powerful tool to the management
for performing its functions efficiently.

Budget
The Chartered Institute of Management
Accountants, England defines a Budget
as A plan quantified in monetary
terms prepared and approved prior to a
defined period of time usually showing
planned income to be generated and /
or expenditure to be incurred during the
period and the capital to be employed
to attain a given objective.

Estimate, Forecast and Budget

An Estimate is predetermination of future events
either on the basis of simple guess work or
following scientific principles.
Forecast is an assessment of probable future
events. Forecasting precedes preparation of a
budget as it is an essential part of the budgeting
process.
A Budget is a detailed statement of forecast
resulting from joint action of a number of
planned operations conducted with normal
efficiency.

Budgetary Control
The Chartered Institute of Management Accountants,
England
defines
Budgetary
Control
as,
the
establishment of budgets relating to their 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 objective of that
policy or to provide a basis for its revision.
Budgetary Control is applied to a system of management
and accounting control by which all operations and
output are forecasted as far as possible and actual
results when known are compared with budget
estimates.

Essentials of Budgetary
Control
Establishment of budgets
Continuous comparison of actual
with budgets for achievements of
targets
and
placing
the
responsibility
for
failure
to
achieve the budget figures
Revision of budgets in the light
of changed circumstances

Budget Manual
The budget manual is a written document
or booklet which specifies the objective of
the budgeting organization and procedures.
The Chartered Institute of Management
Accountants, England defines a Budget
Manual as, a document schedule which
sets out, inter alia, the responsibilities of
the persons engaged in the routine of and
the forms and records required for
budgetary control.

Types of Budget
Budget

Coverage
Capacity
Condition Period
Functional
Long term
Master
Short term

Fixed Budgets
Flexible Budgets

Basic
Current

Types of Budget
Functional Budgets
Sales budget
Production budget
Materials budget
Direct Labour budget
Manufacturing overheads
Administrative cost budgets
Plant utilization budgets
Capital expenditure budgets
Research and development cost budget
Cash budget

Performance Budgeting
In conventional system of budgeting, money
concept was given more performance i.e.,
estimating or projecting rupee value for various
accounting heads or classification of revenue or
cost.
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.
Thus in performance budget classification of
expenditure there are three pattern i.e., function,
programme and activity. Performance or production
goals in physical and financial terms are established
in accordance with this new classification and actual

Zero Base Budgeting

This technique was introduced by expresident Jimmy carter of USA, as a means to
controlling state expenditure.
Since early 1970s, it is gaining acceptance
in the business world because it is proving its
utility as a tool integrating the managerial
function of planning and control.
ZBB is the best used as managerial control in
activities which are directly related to the
final output of these activities.

Zero Base Budgeting

CIMA defined , as a method of budgeting whereby all
activities are revalued each time a budget is set.
Discrete levels of each activity are valued and a
combination chosen to match funds available.
A planning and budgeting process which requires each
manager to justify his entire budget request in detail
from scratch and shift the burden of proof to each
manager to justify why he should spend any money at
all.
The approach requires that all activities be analyzed in
decision packages which are evaluated by systematic
analysis and ranked in order of importance.

Responsibility Accounting
According to Certified Institute of Management
Accounting, London, Responsibility accounting is
a system of Management Accounting under which
accountability is established according to the
responsibility delegated to various levels of
management and management information and
reporting system instituted to give adequate feedback in terms of the delegated responsibility.
Under this system divisions or units of an
organization under specified authority in a person
are developed as a responsibility centre and
evaluated individually for their performance. A
good system of transfer pricing is essential to
establish the performance and results of each

Responsibility Accounting
Responsibility accounting fixes responsibility for cost
control purposes.
It is method of accounting in which costs and
revenues are identified with persons who are
responsible for their control rather than with products
or functions.
This method classifies costs and revenues according
to the responsibility centres that are responsible for
incurring the costs and generating the revenues.
Responsibility centres can be broadly classified into
three categories i.e., Cost centres, Profit centres and
Investment centres