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Presentations By Rajendran Ananda Krishnan,

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  1. 1. Budgeting Rajendran Ananda Krishnan sthinkprettythings
  2. 2. Budgeting Introduction- Definition Classification Budgetary control
  3. 3. INTRODUCTION: For effective running of a business, management must know: • where it intends to go i.e. organizational objectives • how it intends to accomplish its objective i.e. plans • whether individual plans fit in the overall organizational objective. i.e. coordination • whether operations conform to the plan of operations relating to that period i.e. control “Budgetary control is the device that a company uses for all these purposes.” sthinkprettythings 3
  4. 4. Definition Budget is a detailed plan of operations for some specific future period.According to Gordon budget may be defined as “a predetermined detailed plan of action developed and distributed as a guide to current operations and as a partial basis for the subsequent evaluation of performance”. sthinkprettythings
  5. 5. WHAT IS A BUDGET?“ A plan expressed in money. It isprepared and approved prior to thebudget period and may show income,expenditure and the capital to beemployed. May be drawn up showingincremental effects on formerbudgeted or actual figures, or becompiled by Zero-based budgeting.” sthinkprettythings 5
  6. 6. CLASSIFICATION OF BUDGETSACCORDING TO ACCORDING TO ACCORDING TO TIME FUNCTION FLEXIBILITY1. Long term budget 1. Sales budget 1. Fixed budget2. Short term budget 2. Production budget 2. Flexible budget3. Current budget 3. Cost of Production budget4. Rolling budget 4. Purchase budget 5. Personnel budget 6. R & D budget 7. Capital Expenditure budget 8. Cash budget 9. Master budget sthinkprettythings 6
  7. 7. 1. SALES BUDGET: Sales budget is the most important budget based on which all the other budgets are built up. This budget is a forecast of quantities and values of sales to be achieved in a budget period.2. PRODUCTION BUDGET: Production budget involves planning the level of production which in turn involves the answer to the following questions: a. What is to be produced? b. When is it to be produced? c. How is it to be produced? d. Where is it to be produced? sthinkprettythings 7
  8. 8. 3. COST OF PRODUCTION BUDGET: This budget is an estimate of cost of output planned for a budget period and may be classified into – • Material Cost Budget • Labour Cost Budget • Overhead Cost Budget4. PURCHASE BUDGET: This budget provides information about the materials to be acquired from the market during the budget period. sthinkprettythings 8
  9. 9. 5. PERSONNEL BUDGET: This budget gives an estimate of the requirements of direct labour essential to meet the production target. This budget may be classified into – a. Labour requirement budget b. Labour recruitment budget6. RESEARCH AND DEVELOPMENT BUDGET: This budget provides an estimate of expenditure to be incurred on R & D during the budget period. A R&D budget is prepared taking into consideration the research projects in hand and new R & D projects to be taken up. sthinkprettythings 9
  10. 10. 7. CAPITAL EXPENDITURE BUDGET: This is an important budget providing for acquisition of assets necessitated by the following factors: a. Replacement of existing assets. b. Purchase of additional assets to meet increased production c. Installation of improved type of machinery to reduce costs.8. CASH BUDGET: This budget gives an estimate of the anticipated receipts and payments of cash during the budget period. Cash budget makes the provision for minimum cash balance to be maintained at all times. sthinkprettythings 10
  11. 11. 9. MASTER BUDGET:CIMA defines this budget as “ The summary budget incorporatingits component functional budget and which is finally approved,adopted and employed”.Thus master budget is a summary of all functional budgets incapsule form available in one report.10. FIXED BUDGET:This is defined as a budget which is designed to remainunchanged irrespective of the volume of output or turnoverattained.This budget will, therefore, be useful only when the actual level ofactivity corresponds to the budgeted level of activity. sthinkprettythings 11
  12. 12. 11. FLEXIBLE BUDGET:CIMA defines this budget as one “ which, by recognising thedifference in behaviour between fixed and variable costs inrelation to fluctuations in output, turnover or other variablefactors such as number of employees, is designed to changeappropriately with such fluctuations”.12. PERFORMANCE BUDGETING:These days budgets are established in such a way so that eachitem of expenditure is related to specific responsibility centreand is closely linked with the performance of that standard. sthinkprettythings 12
  13. 13. 13. ZERO BASE BUDGETING:The zero base budgeting is not based on the incrementalapproach and previous figures are not adopted as the base.Zero is taken as the base and a budget is developed on thebasis of likely activities for the future period.A unique feature of ZBB is that it tries to helpmanagement answer the question, “Suppose we are to startour business from scratch, on what activities would we spentout money and to what activities would we give the highestpriority?” sthinkprettythings 13
  14. 14. Fixed budget Flexible budgetAssumes static business Based on the assumption ofconditions changing business environmentPrepared only for one level of Prepared for different capacityactivity levels or for any level of activityThe values( figures) will not The figures are adjustedchange when actual level of according to the actual level ofactivity changes activity attainedWhen actual level of activity Such comparison are quitediffers from budgeted level of realistic.activity, then fixed budgetsmeaningful comparisonbetween actual and budgetedfigures is not possible. sthinkprettythings
  15. 15. Budgetary Control Budgetary control as „the establishment of budgets relating to the 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”. sthinkprettythings
  16. 16. www.smartsuggestion.blogspot.comWHAT IS BUDGETARY CONTROL?Budgetary control is the use of the comprehensive system of budgetingto aid management in carrying out its functions like planning,coordination and control.This system involves:  Division of organization on functional basis into different sections known as a budget centre.  Preparation of separate budgets for each “budget centre”.  Consolidation of all functional budgets to present overall organizational objectives during the forthcoming budget period.  Comparison of actual level of performance against budgets.  Reporting the variances with proper analysis to provide basis for future course of action. sthinkprettythings 16
  17. 17. www.smartsuggestion.blogspot.comCONCLUSION: Ψ Preparation of budgets is the first step in the budgetary control system. Ψ Implementation of budgets is the second phase. Ψ But preparation and implementation of budgets alone will not achieve much unless a comparison is made regularly between the actual performance and the budgeted performance. Ψ Continuous and proper reporting makes this possible. Ψ To ensure the success of budgetary control system, proper follow up action has to be taken immediately for the reports submitted. sthinkprettythings 17