Q. 1. Define Budget and Budgetary Control, What are its various objectives?

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Answer

Modern business is full of instability and uncertainties. On one hand, keen competition, Govt. policies, different laws, Govt. regulations and different New techniques of production and above all the changing consumer behavior, in such situation that businessman will get success, who can face these challenges.

The impact of these has been that all businessmen have started making the use of budgetary technique. The technique of budgetary control has been inducted into the system as a means to compare the actual expenditure with budgeted expenditure and analysis of variations put for corrections.

Meaning of budget and budgetary control

Budget

It is a financial plan of a corporate for a specific future period of time. It is an expression of income and expenditure of a specific period. It is a system which is related to plan and control. Therefore, budget also includes budgetary control. Someone has rightly observed when he concluded that business budget is concerned with policy framing whereas control is budgetary implementation of the policy.

In a narrow sense, budgetary control is a technique of controlling costs which includes budget wherein comparison is made between actual cost to budgeted cost and thus aimed at profit. No doubt budget is a plan which covers all functional areas of a business for a specific future period of time.

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Definitions

The following are the main definitions of budget as:

Brown and Howard, “The budget is a pre-determined statement of management policy during a given period which provides a standard for comparison with the results actually achieved.”

George R. Terry “A budget is an estimate of future needs arranged according to an orderly basis covering some or all the activities of an enterprise for a definite period of time.

Harry L. Wyllie “Budgets are finished products….. they are formal programmes of future operations and expected results, budgets result from forward thinking and planning.”

Sanders “The essence of a budget is a detailed plan of operations for some specific future period, followed by a system of records which serves as a check upon plan.”

H. J. Weldon “A budget is thus, a standard with which to measure the actual achievement of people, department etc.”

Hemass C. Heiser “Budget is an overall blueprint of a comprehensive plan of operations and actions expressed in financial terms.”

Budgetary Control

Budgetary control is not merely matching of estimated expenses to actual expenses but also related to place the responsibility for failure. The periodic checking up of income, costs and expenses related to the administration of the budget is known as budgetary control.

Objectives/importance/functions of Budgetary Control

The following are the main objectives of budgetary control:

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1. Production efficiency. Budgetary control is such a technique which plans in advance regarding the effective use of material quantity. Thus; a smooth chain of production will continue.

2. Success of costing records. The technique of budgetary control enhances the utility of Cost Account which provides the knowledge of future costs thus, cost variations can be minimized.

3. Planning future. Every producer plans a definite output for a specific period for which how much finance, materials, labor and other expenditure will be needed can be estimated easily with the help of budgets.

4. Cost Control. Budgetary cost is useful for cost controlling as the production process is rotating according to pre-determined targets. Here actual costs are compared to budgeted costs if any variation these are corrected by the management.

5. Helpful in policy framing. Budgeting provides a tool through which basic policies are periodically examined, restated and established as guidelines for the entire organization.

6. Budget a solution to basic problems. The budgeting obliges management to make an early study of its basic problems. It is useful in making rational decisions.

7. Control on income and expenditure. In modern times budgeting is used for directing capital and efforts into most profitable channels. Every producer classifies expenditure. Fixed expenses and variable expenses; these are very useful for knowing break— even-points for output and sale.

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8. Knowledge of required capital. Budgetary control technique is very useful in knowing the quantum of required capital for the smooth running of the organization.

9. Knowledge of possibility of expansion. Every business leader has a desire for expansion. Budgetary control technique is most suitable in knowing how much extra capital labor, risk etc. will be needed can be estimated easily.

10. Helpful in administration. Budgetary control is eye to the management. No other management control reveals weakness in the organization so quickly as the orderly procedure necessary for systematic budgeting.

11. Helpful to the nation. Budgeting not only suitable to the organisers but also to the nation as a whole. Budgeting executed in nearly every enterprise offers hope for the total national economy by providing stability of employment, economical use of tools and effective prevention of waste.

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