The document discusses the key stages in the budgeting process, including communication, determining limiting factors, preparing the sales budget and other functional budgets, negotiating budgets with supervisors, reviewing budgets, and finalizing the master budget. It also covers topics like fixed and flexible budgets, zero-based budgeting, and the role of budgetary control in planning, coordination, communication, motivation, and performance evaluation.

1. Management Accounting.
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2.  Stages in budgeting process
 Important stages of a typical budgeting process are given below.
 1. Communication
 Communication details of budget policy and guidelines to those responsible for
the preparation of budgets.
 2. Determining the factor that restricts output
 It is vital recognize the limiting factors in budgeting process. In every organization
there are some factors that restrict performance for a given period. (Ex:demand,
production capacity,machine hours etc.) This limiting factor determiners the point
at which the annual budgeting process should begin.
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3.  3. Preparation of the sales budget
 Sales budget is the most important plan in the annual budgeting process. This
budget is also the most difficult plan to produce because total sales revenue
depends on the action of buyers.
 4. Initial preparation of various budgets
 Every other budget will depend upon the main budget which the main budget (
Sales budget).
 Other budget may include;
 Production budget
 Material purchase budget
 Overhead budget
 Administration expenditure budget
 Budgeted profit and loss account
 Budgeted balance sheet
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4.  5. Initial negotiation of budgets with superiors
 To implement an active participative approach to budgeting,the budget should be
originated at the lowest level of management.The supervisor at this level should
submit their budget to their manager for approval.
 6. Coordination and review budgets
 As the individual budgets move up the organization process, they must be
examined in relation to each other. Any changes in the budget should be made by
the responsible officer.
 7. Final acceptance of the budget
 When all the budgets are in harmony with each other, they are summarized into a
master budget consisting of a budgeted P&L, Balance sheet and cash flow
statement as given below.
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5.  Functional budgets
 A functional budget is a budget of income and/ or expenditure applicable to
particular function. Such as Sales, production, raw materials, labour, overhead,
marketing, research and development, administration, etc. For these functional
budgets a particular department will be responsible.
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Functional budget Responsible department
Sales budget Sales department
Production budget Production department
raw materials budget Purchasing department
Labour budget Human resources department
Overhead budget Production/ engineering department
Machine utilization budget Production/ engineering maintenance
Other functional budgets
(administration, sales and distribution)
The respective department

6.  The cash budget
 A cash budget can be seen as a feed forward control technique of future potential
problems that could arise enabling the management to take the necessary
remedial actions. And also a cash budget will act as a feedback control technique
assisting the control function in an organization.
 The objective of preparing the cash budget is to avoid any cash shortage situation
and also to minimize surplus cash which is idling in the organization.
 A cash budget will ensure that the right amount of cash is available at the right
time.
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7.  Fixed budget and Flexible budget
 Fixed Budget
 A master budget prepared before the budget period is known as the fixed budget.
The budget will be prepared based on estimated sales, production information and
they are not adjusted when actual volume differs from budgeted volume.The fixed
budget is used for planning purposes.
 Flexible Budget
 It is a budget which, by recognizing cost behaviour patterns, is designed to change
as volume of output changes. Flexible budgets are used in one of two ways.
 At the planning stage a flexible budget can be prepared at different levels.
 Retrospectively, at the end of each control period, flexible budget can be prepared
to compare with actual cost
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8.  Zero Based budgeting (ZBB)
 A method of budgeting which requires each cost element to be specially justified,
as though the activities to which the budget related were being undertaken for the
first time.Without approval, the budget allowance is zero. This approach is deal for
public sector organization, where the aim of the fund holder is to achieve the best
service levels possible within the given budget.
 Advantages of ZBB
 It avoid the complacency inherent in the traditional incremental approach
 It helps the optimum use of resources as priorities are established
 Allows managers to think clearly as each cost and benefits are considered
carefully.
 It allows participation of employees which results job satisfaction.
Disadvantages of ZBB
 Job involved takes more management time
 The ranking process is inherently difficult
 May lead to concentration on short term saving at the cost of long term benefits
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9.  Master Budget.
 As per the diagram of budget preparation, the master budget comprises the
budgeted profit & loss account, budgeted cash flow statement and budgeted
balance sheet. Hence the master budget is a summary of all the functional budgets.
In order to get the approval for the budget,the master budget will be submitted to
senior managers. Along with the master budget key ratios with the regard to
profitability, efficiency and gearing will be calculated to give the management a
better picture of the results that the budget is going to yield in the coming year.
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10.  Budgetary Control
 It is the comparison of actual results with that of budgeted results.Variances are
calculated and reported to management to take appropriate action.
 Budgetary control is based on controlling total expenditure,it involves establishing
targets or limits for a forthcoming period for a functional or cost center, comparing
actual achievement or expenditure with the targets/ limits and taking action to
control any variances where necessary.
 Advantages / Purposes are,
 Planning annual operations
 Coordinating the activities of the various parts of the organization and ensuring
that the parts are in harmony with each other
 Communicating plans to the various responsibilities center managers.
 Motivating managers to strive to achieve the organizational goals.
 Controlling activities
 Evaluating the performance of managers.
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