Presented By: Arvinder Gill Ekta Jindal Harmeet Singh Isha 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.
Proper Delegation of Authority & Responsibility
Proper Communication Channel
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:
T hese are generally for 1 or 2 years and are in the form of monetary terms.
E.g. Sugar, cotton, textiles etc.
The budget relate to the current activities of the business. It is generally for months and weeks.
It is a budget which relates too any of the functions of an undertaking. E.g. Sales, Production, R&D, cash etc.
Cost of Production 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.
Past sales figures and trends
Availability of raw material
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.
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.”
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