beverage budget control

budgetary control process

Principles of Budgeting

  • Targets must be realistic.
  • Conduct a detailed analysis of past trends and their influence on future
  • expectations
  • Make a provision for inflation
  • Allow for projected growth
  • Agree timing of Budget
  • Decide who is involved in preparing the budget

Budget control

Budget is the monitory expression of business plans and financial policies to be pursued in the emerging future period of time. The term budget is associated with the estimated figures regarding sales, production, cost, profit, etc for future and it requires planning, co-ordination, control, etc.
Preparing a budget may not be'very difficult but to prepare a budget which is very close to the actual figures is very important and requires a qualified, experienced staff. Though there may be a separate department consisting of experts for preparing the budgets but they require the help and co-ordination of various other officials and data to prepare budgets.

Budgetary Control : Budgetary control is the preparation of budgets relating to the responsibilities of executives to the requirement of a policy, and the continuous comparison of actual with budgeted figures. (I.C.W.A. Terminology of Cost Accountancy) Budgetary control is not a type of costing but is extensively used in all types of industries, businesses, Government departments as a system of control through responsible persons such as executives, departmental heads, foremen, supervisors, etc. From the definition of budgetary control it will be observed that the first step is the preparation of a budget. A budget is a financial and / or quantitative statement prepared and approved prior to a period of time, to the policy to be pursued during that period for the purpose of attaining a given objective. It is the process of determining various budgeted figures for the enterprises for the future period and then comparing the budgeted figures with the actual performance for calculating variances. first of all, budgets are prepared and then actual results are recorded. the comparison of actual and budgeted fugures will be termed as discrepency. the budgets can be revised as the time passes. and that is why it is said that a budgetary control is a continuous process which helps in planning and coordination.

The main steps under budgetary control:
a) Establishment of budgets for each section of the organization and incorporating the functional budgets in summary or master budget consisting of a forecast or budgeted profit and loss account and balance sheet.
b) Recording of actual performance and continous comparison of the actual performances with that of the budget so as to determine the variances from the budget,
c) Ascertainment of reason for such variances and taking suitable actions to remedy the defects in order to achieve the objective under original policy or to provide a basis for its revision.

Objectives :

 For policy, planning and control the budgetary control is essential. The main objectives of budgetary control are:
1.To plan for future.
2.To have co-ordination among different departments activities.
3.To operate departments with efficiency, economy and perfectly.
4.Minimising of wastes and increase in profitability.
5.To anticipate capital expenditure for future.
6.Correction of deviations from the established standards.
7.Fixation of responsibilities of all people working in the company.
8.To centralize the control system.
9.To anticipate working capital for future.
10.To safeguards the assets and get maximum utility from them.
11.To reduce the cost both labour and over head and have a better gross and net profit.

Essentials for Budgetary Control System :
It is easy said than done; to have a successful implementation of a budgetary control system the following steps are taken:

Organisation : To have a successful preparation, maintenance and administration of budget a proper organization is essential.

Budget Centre: it is that part of organization for which the budget is prepared. it may  be a section of a department or the department itself. the establishment of budget centre is essential for covering all parts of the organization.

Budget Manual: It is document which spell out the duties and responsibilities of various executives concerned with the budget; A budget manual covers the following matters :
a)The objective of budgetary control system along with the benefits of this system.
b)The duties and responsibilities of various personnel dealing with the preparation of budgets.
c)It gives information about the sanctioning authorities of various budgets.
d)A specimen form and the number of copies to be used for preparing budgets will also be stated.
e)Budget centre is dearly mentioned.
f)The length of various budget periods is clearly given. The total budget of the budget department.
h)The time frame to present the budget.
i)The powers of various personnel dealing with the preparation of budget.

4.Budget Officer : The chief executive who is at the top of the organization
appoints a person as the budget officer. The budget officer is empowered to
scrutinize budgets prepared by different functional heads and to make changes in
them, if the situation requires

Budget Committee ; In smalt scale concerns, the accountant is made sponsible for preparation and Implementation of budgets, in large scale concerns, committee called budget committee is formed. The committee is responsible for preparation and execution of budgets. The members of this committee put up the cases of the8iir respective departments and help the committee to take collective decisions.

Budget Period: This is the length of time for which a budget is prepared
Budget can be prepared for short term and long term

Determination of Key Factors for Budget Preparations :

Budgets are prepared for all functional areas. These are inter-dependent and inter related. Co-ordination amongst departments is necessary for making budgetary control a success. A factor which influences the other budget is known as a key factor / principle factor. Sale is a key factor and all other budgets are prepared by keeping in view the amount of goods the concerned will be able to sell. If the raw materials supply is limited, then the production and sales budgets will be decided according to the raw materials budget. Similarly, the plant capacity may be a key factor if the supply of other factors is easily available. The key factor may not necessarily remain the same. The raw materials supply may be limited at one time but it may be easily available at another time. The sales may be increased by adding more sales staff, etc. Similarly, other factors may also improve at the different times. The key factors also highlight the limitation of an enterprise. This will enable the management to improve the working of those departments where scope for improvement exists.

Advantages of Budgetary Control :

 The following are the advantages of budgetary control :
1.Maximisation of Profits
3.Tool for measuring performance
5.Determining weaknesses
6.Specific targets
7.Corrective action
9.Revision of budgets 10? Timely decision
10.Timely decision
12.Measurements of departments performance
13.Reduces cost
14.Carrot and stick policy

Limitations of Budgetary Control :

 Though there are many advantages of budgetary control but still there are some limitations listed as below:
1. Problem of co-ordination
2. uncertain future
3. discourages efficient employees
4. budgeting revision required
5. conflict amongst departments
6. depends upon the support of top management
7. non availability of future data
8. act of god: due to some acts which are not in the control of mankind.

Types/Classification of budgets:

1. According to Time

long term
medium term
short term

2.According to Functions :

a) Operating Budget
(i)   Program Budget
ii)Responsibility Budget
b)Financial Budget
c) Master Budget

3. According to Flexibility

a) Fixed Budget
b) Flexible Budget

1. According to Time :

The budgets can be prepared for short term, medium term, and long term or for current period. Usually long term and medium term budgets are for the capital investment and generally involve more of capital.
a)Long Term Budget: It is prepared to depict the long term planning of the
company / hotel. These budgets may be prepared five to ten years in advance. The long term planning is done by top level management and is not generally known to the lower level of management. These budgets are prepared for increasing the production or starting a new industry or unit and usually involve a lot of capital. To implement these budgets the future demand, cost, availability of raw material, future competition, etc, are kept in mind.
b)Medium Term Budget : These budgets are usually prepared for two to five years in advance. These budgets are also planned by senior level management but are prepared when management can not wait for as long as seven to ten years to implement the decision.
c) Short Term Budget: These budgets are generally prepared one to two years in advance and are in the form of monetary terms. The consumer goods industries like sugar, cotton, textile, constitute these budgets.
d) Current Budgets : The period of current budgets is generally of months and weeks. These budgets relate to the current activities of business. According to ICWA London, 'Current budget is a budget which is established for use over a short period of time and is related to current conditions.

According to Functions : 

The budgets can be prepared for different types of jobs performed by the organization like operation, financial, etc. and these are termed as budgets as per functions :
a) Operating Budget: These budgets relate to the different activities / operations performed by a company. The number of such budgets depends upon the size and nature of business. Commonly used operating budgets are sales budget, production budget, purchase budget, plant and machinery budget, etc. The operating budget for a company may be constructed in terms of program or responsibility areas and hence may consist of:
i) Program Budget: It consists of expected revenues and costs of various products for projects that are termed as the major programs of company. Such budget can be prepared for each product line or project showing revenue, cost, etc. These budgets are useful in locating areas where efforts may be required to reduce costs and increase revenue. They are useful in determining imbalances and inadequate in program
ii) Responsibility Budget : When the operating budget of a firm is constructed in terms of responsibility areas, it is called the responsibility budget. This budget shows the plan in terms of person responsible for achieving the budget. It is used by the management as a control device to evaluate the performance of executives'who are in charge of various costs.
b)Financial Budget: These budgets are concerned with cash receipts and payments, capital expenditure-, working capital, financial position and results of business operation. Commonly used financial budgets are: Cash budget, Working Capital Budget, Income Statement Budget, Capital Expenditure Budget, etc.
c) Master Budget : Various functional budgets are integrated into master budget. This budget is prepared by the ultimate integration of separate functional budgets. This budget is used to co-ordinate the activities of various functional departments and also help as central device of a company.

3. According to Flexibility : 

The long term budgets once prepared are revised periodically keeping in view the new developments and that is why it is said that budgets should not be rigid and there should be a provision to modify it depending upon the new developments. This modification is termed as flexibility in budgets.
a)Fixed Budget / These are prepared for a given level of activity. The budget is prepared before the beginning of a financial year. If the financial year starts in April, then the budget will be prepared a month or two before i.e. in February or March. These budgets are suitable under static conditions. If sales, expenses and costs can be forecasted with greater accuracy, then this budget can be very useful.
b)Flexible Budget: It consists of a series of budgets for different levels of activities, it therefore, varies with the level of activity attained. A flexible budget is prepared after taking into consideration unforeseen changes in condition of company. A flexible budget is defined as a budget which by recognising the difference between fixed, semi fixed and variable cost is designed to change in relation to the level of activity. this budget is useful where level of activity changes from time to time. these budgets are more used for long term and medium term budgets.


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