Budget

1. Introduction:
Budgeting & Budgetary Control.Is a short- term financialplan which acts as a guide to achieve the pre -determined
targets. It is a comprehensive and coordinatedplan,expressed in financialterms, for the operationsand resources of
an enterprise for some specific period in the future.

2. Meaning of Budget and Budgetory control :
It is an expression of income and expenditures over a certain period. Budgets are plans that cover all functionalareas of a
business for a specific future period. A budget is a system that is related to planand control.Therefore, budgetsalso include
budgetary control.

3. Definitionof Budget and Budgetory control :
G.A.Welshstates, “A budget is a written plan covering projected activities of a firm for a definitetime period.”
Budgetary Control:Budgetary Controlis a method of managing costs through preparationof budgets. Budgeting
is thus only a part of the budgetary control.

4. Objectives,Importance, and Functions of Budgetary Control:
The main objectives of budgetary control are as follows:
1. Production efficiency: Budgetary control is a technique marked by advancedplanningfor the effective use of materials.
Thus, it leadsto smooth productionchains.
2. Success of costing records:Budgetary control improves the utilityof cost accounts, which provides knowledge about
future costs. Hence, cost variationscan be minimized.
3. Future plannin: Every producer plansa definite output for a specific period for which it is possible to use budgetsto
estimate the required amount of finance, materials, labor, and other expenditures.
4. Cost control:Budgetary controlis useful for cost control because the production process rotates around predetermined
targets. Here, actualcosts are compared to budgeted costs, and any variationsare corrected by the management.
5. Helpful in policy framing: Budgeting provides a tool through which basic policies are periodicallyexamined,restated, and
establishedas guidelines for the entire organization.

5. Characteristics of budget
1. It is an estimate, not an actual statement.
2. It is prepared annually.
3. It is prepared at all levels of the Government, whether it is Central Government, State
Government, or Local Government. However, our study is restricted to the Budget prepared by
the Central Government, also known as the Union Budget.
4. The expected revenues and expenditures are planned as per the objectives of the
Government.
5. In India, the Finance Minister presents the annual budget of the Government for its approval
by the parliament. It is approved and then it is implemented.
6. A budget discloses both the financial performance of the Government in the last year and
Government policies for the following year.
7. Budget impacts the economy through fiscal discipline and resource allocation.

6. Advantages of Budgetarycontrol :
•An effective tool for performance measurement of departments, individuals,and cost centers;
•Identificationof areas for reduction and efficiency improvement;
•Increased efficiency and cost reduction result in profit maximization;
•It also helps in introducingincentive schemes based on performance
• Cost reductionis alwaysthe primary target.

7. Disadvantagesof budgetarycontrol :
•Budgeted numbers often need revision as future prediction is difficult.
•Time-consuming and costly process, need people and resources Budgetary controlprocesses.
•This process sometimes requires coordinationbetween various departments and is a difficult task.
•This process requires approvaland support from top senior management.
•Always comparing the actuals with a budget is detrimentalto employees’ motivation.

8. Essentials of Budgetary Control:
1. Organization for Budgetary Control:
The proper organization is essential for the successful preparation, maintenance and administration of
budgets. A Budgetary Committee is formed, which comprises the departmental heads of various
departments. All the functional heads are entrusted with the responsibility of ensuring proper
implementation of their respective departmental budgets.
2. Budget Centres:
A budget centre is that part of the organization for which the budget is prepared. A budget centre may
be a department, section of a department or any other part of the department. The establishment of
budget centres is essential for covering all parts of the organization. The budget centres are also
necessary for cost control purposes. The appraisal performance of different parts of the organization
becomes easy when different centres are established
3. Budget Manual:
A budget manual is a document which spells out the duties and also the responsibilities of various
executives concerned with the budgets. It specifies the relations amongst various functionaries.
4. Budget Officer:
He works as a coordinator among different departments and monitors the relevant information. He
also informs the top management about the performance of different departments. The budget officer
will be able to carry out his work fully well only if he is conversant with the working of all the
departments.

9. 6. Budget Period:
A budget period is the length of time for which a budget is prepared and employed. The
budget period depends upon a number of factors. It may be different for different industries
or even it may be different in the same industry or business.

11. Function
Sale Budget :
A sales budget is a financialplan that estimates a company'stotal revenue in a specific time period. It focuses on two
things—the number of productssold and the price at which they are sold—to predict how the company will perform.
production budget :
A productionbudget is a document that expresses the number of units of a specific product that an organizationmust
produce to match its estimated sales quantity.
Raw materials budget :
The materialsbudget (or materialspurchases budget) is used to plan how much raw materialswe need to have availableto
meet budgetedproduction.
Purchasebudget :
A purchases budget containsthe amount of inventorythat a company must purchase during each budget period.
Labour budget :
The direct laborbudget is used to calculatethe number of laborhours that will be needed to produce the units itemized in
the productionbudget.
Production overhead budget :
Overhead Budget is prepared to forecast and present all the expected costs concerning manufacturing the goods that the
company expects to incur in the next year.
Selling & distributionbudget :
Selling and distributioncost budget forecasts the cost of selling and distributing the products. This budget dependsupon the
sales budget.

12. Administrativecost budget :
An administrativebudget is usuallyprepared on an annualor quarterly basis and identifies the costs of running an operationthat
is not tied to producing a product or service.
Capital Expenditure budget :
A capitalexpenditure budget is a formal plan that states the amounts and timing of fixed asset purchases by an organization.
Cash budget :
A cash budget is an estimationof the cash flows of ness over a specific period of time. This could be for a weekly, monthly,
quarterly, or annualbudget.
Flexibility:
Fixed:
A fixed budget is a financialplan that is not modified for variationsin actual activity. It is thShoShort-term nly-used type of
budget, because it is easier to construct than a flexible budget.
Flexible:
Flexible budgetsare essentially budgets that can be adjusted dependingupon revenue and cost changes throughout the fiscal
year, accountingfor expected unpredictability.
Time:
Long-Term
A long-range budget is a financialplan that extends for more than one year into the future. This type of budget typicallycovers a
five-year period and is focused on the strategic direction of thebbusinesss.
Short-Term:
The short term budget is more reliableand accurate. The long term budget is prepared for a long term that is more than one
year. It covers three years to 10 yearsof planning.

14. 1. Define major goals and objectives: These are the quantitative expectations of the company’s future performance.
2. 2 Gather data: Here, the department heads provide their estimates and assumptions on the expected sales, production
levels, availability of resources, planned restructuring, and so on.
3. 3. Prepare the model: Once data gathering is complete, the managers pass the estimates over to the Budget
Committee, which compiles all the information available and prepares the model.
4. 4. Approve the Budget: Upon preparing and synchronizing the model, the Budget Committee is ready to approve the
final Budget
5. 5. Communicate the Budget: After Budget approval, the Budget Committee should communicate it to the department
managers in charge.
6. 6. Report interim results: Overall, budgeting requires effective communication across departments – not only upon
preparation but also during implementation.

17. Budget Rations :
These Rations Provide information About the performance level.I.e the extent of deviationsOF performance
from the budgeted performance and whether the actual performance is favourableor unfavourable.
Standardcapacity EmployedRatio Actual direct labourhours worked ÷ budgeted direct labour hours) ×100%
capacity usage budget :(Actual direct labourhours worked ÷ budgeted direct labourhours) × 100%.
CalendarRatio = Number of actual working days in a period / Number
of working daysin the budgeted period × 100

18. Conclusion :
A budget should be based on norms and standards.The budget
should be coordinated,integrated,organized, systematic, clear,
and comprehensive to accomplish optimalresults. The budget
preparation,review, and evaluation process must be facilitated.
An orderly budgeting process will result in less cost, less man-
hours, and minimizationof conflict and turmoil. It will require
less revision at a later date. The budget process must consider
input -output relationships.The budget aids in anticipating
problems before they become critical. Short-term budgets
should be used for businesses subject to rapid change. A budget
is a tool for planningand for "what-if" analysis.It aids in
identifyingthe best course of action.

19. Budget Analysis
According to Article 112 of the IndianConstitution,the Union Budget of a year, also referred to as the
annualfinancialstatement, is a statement of the estimated receipts and expenditure of
the government for that particularyear. Union Budget keeps the account of the government’s
finances for the fiscal year that runs from 1st April to 31st March. Union Budget is classified into
Revenue Budget and CapitalBudget.
CapitalBudget includes capitalreceipts and payments of the government. Loans from the public,
foreign governments and RBI form a major part of the government’s capitalreceipts. Capital
expenditure is the expenditure on developmentof machinery, equipment, building,health facilities,
educationetc. The fiscal deficit is incurred when the government’s total expenditure exceeds its total
revenue.

20. Budget Bibliography:
Archer, S.H., et al. 1972. Business Finance—Theory and Management. New York: Macmillan.
AS–6. November, 1982. Depreciation Accounting. New Delhi:The Institute of Chartered
Accountantsof India, para 3.1.
Anthony,R.N., et al. 1975. Principles of Management Accounting. Illinois:Richard Irwin.
Batty, J. 1966. Management Accountancy. London:MacDonaldand Evans.