Presented By:Arvinder GillEkta JindalHarmeet SinghIsha Arora

M.B.A-IB

Topic: Cost Control Techniques – Budgetary Control

“It is a powerful tool of management for performing its functions efficiently”

Fixes targets in terms of Money

Related to both management and accounting functions

Budget Forecast

Relates to Planned events Concerned with Probable events

Planned Separately for each accounting Period

Cover a long period

Comprises the Whole Business unit Cover a Limited Function

Tool of Control Does not connote any sense of control

Starts when Forecast ends Fun. Of Forecast ends with Forecast of likely Events

Made in respect of spheres related to Business

Made in several other spheres which may not connected with budgeting process

CIMA London Defines: “The establishment of budgets

relating to the responsibilities of executives to the requirements of the policies & the continuous comparison of actual with budgeted results either to secure the individual action the objectives of that policy or to provide a firm basis for its revision”

It is planned to assist the management in the allocation of responsibilities & authority to aid in making estimates & plan for the future.

Planning

Co-ordination

Control

Clarifying Objectives

Proper Delegation of Authority & Responsibility

Proper Communication Channel

Budget Education

Flexibility

Motivation

To Receive, revise & Approve Budget

To Receive report According to Schedule

To Pinpoint the responsibility

To participate the discussion

To Create coordination

To Revise & amend the Budget

To Prepare budget programmes

To prepare summary budgets

To Revise Budget According to Direction

To Collect actual Cost and Compare it

Classification according to Period

Classification on the basis of Function

Classification on the basis of Capacity

Classification on the basis of Condition

Long Term Budgets: The budgets which are

prepared to depict long term planning's of the business.

E.g. Capital expenditure, R&D, Long term finances.

Short Term Budgets: These are generally for 1 or

2 years and are in the form of monetary terms.

E.g. Sugar, cotton, textiles etc.

Current Budget. The budget relate to the

current activities of the business. It is generally for months and weeks.

Functional Budget: It is a budget which relates

too any of the functions of an undertaking. E.g. Sales, Production, R&D, cash etc.

Sales Budget Production Budget Cost of Production Budget Purchase Budget Personnel Budget

Sales Budget: It is a detailed schedule showing the expected sales for the budget period.

The sales manager should take into consideration the following factors.

a) Past sales figures and trendsb) Salesman estimatec) Plant capacityd) Availability of raw materiale) Seasonal Fluctuationsf) Financial aspect

Production budget: Forecasts quantity of production

that must be produced during each budget period.

Cost of Production Budget: it relates to obtaining the cost

of procuring the output.

Purchase Budget: It forecasts the quantity and

value of purchases required for production.

“It is a summary budget incorporating all functional budgets in capsule form made for the purpose of presenting in one report, the highlights of the budget forecast.”

Summarization

Accuracy

Profit Estimation

Information of balance sheet

The budget shows planned operations for the  forthcoming  period, including revenues, expenses and related changes in inventory

Point Of Distinction Fixed Budget Flexible Budget

1. Flexibility Inflexible Flexible

2. Condition Remain Static

Designed to Change

3. Classification Of Cost Not Classified Classified

4. Comparison Comparison is not Done Correctly

Realistic

5. Forecasting Difficult to Forecast Shows Clear Picture

Maximization of Profit

Co-ordination

Tool for Measuring Performance

Cost Reduction

Opposition against the very  spirit of budgeting

Budgeting and changing  economy

Time factor

Co-operation required