-: Name : Supriya D. Sonawane. -: Roll No. : 12. -: Subject : Cost Accounting.

-: Introduction :The concept of Budget is being made use of by every individual who undertake a work involving expenditure. While some express it orally others put in written form. For example, a person who wants to go on a holiday tour will prepare a budget involving expenditure on fares, boarding, lodging, purchasing, etc. After returning, he will compare the actual expenses incurred with budgeted expenses to know whether he spent more or less as compared to budgets and if so what factors were responsible for it. This enables into increase or decreases his budget for the next year. In the same way, every business undertakes to budget its expenditure for utilizing the available funds more judiciously. Similarly, to ensure proper utilization of scarce raw materials and other factors of production, the management of every business will prepare a budget relating to material, labour, production and various expenditure. This enables in proper planning of all activities, there co-ordination and finally controlling such activities. In this process it enables the management to know the performance of business for a given period of time.

-: Budget and Budgetary Control :-: Definition of Budget The ICMA terminology defines a budget as, a plan quantified in monetary items, prepared and approved prior to defined period of time, usually showing planned income to generated and/or expenditure to be incurred during that period and the capital to be employed to attain a given objective. -: Definition of Budgetary Control The ICMA terminology defines budgetary control as the establishment of budgets relating to responsibilities of executives to the requirements of a policy and the continuous comparison of actual with budgeted result either to secure by individual action the objective of that policy or to provide a basis for its revision.

-: Objectives of Budgetary Control :The primary objectives of budgetary control to help the management in systematic planning and in controlling the operations of the enterprise. The primary objective can be met only if there is proper communication and coordination amongst different within the organization. Thus the objectives start can be stated as: Planning Co-ordination Communications Controls and Performance evaluation Motivation

-: Essential of Budgetary Control : Budgeting or the process of preparing the budget is the starting point for budgetary control. Distribution of budgets pertaining to each function to all there Levant sections within the organization. Collection of actual data pertaining to all budgeted activities. Continuous comparison of actual performance with budgeted performance. Analysis of variances in actual performance and budgeted performance. Initiation of corrective action to ensure that actual performance is in line with budgeted performance. Revision of budgeted if it is felt that the budgets prepared are no longer relevant on account of unforeseen developments.

-: Advantages of Budgetary control : The objectives of the organization as a whole & the results which should be achieved by each department within this overall framework are defined by the budgetary control. A basis by which future budget can be prepared or the current budget can be revised is provided by the budgetary control. A system whereby in the most efficient way possible the resources of the organization are being used is provided by the budgetary control. The budgetary control indicates how efficiently the various departments of the organization are being coordinated. Situations where activities & responsibilities are decentralized, some centralizing control is provided by the budgetary control. The budgetary control provides means by which the activities of the organization can be stabilized, where the organizations activities are subject to seasonal variations. By regularly examining the departmental results, a basis for internal audit is established by the budgetary control. The standard costs which are to be used are provided by it. For the purpose of paying a bonus to employees, a basis by which the productive efficiency can be measured is provided by the budgetary control.

-: Limitations of Budgetary Control : It used the estimates as a basis for the budget plan. In order to fit with the changing circumstances the budgetary programme must be continually adapted. Normally for attaining a reasonably good budgetary programme, it takes several years.

A budget plan cannot be executed automatically. Enthusiastic participation is required by all levels of management in the programme.
The necessity of having a management & administration will not be eliminated by any budgetary control system. The place of the management is not taken by it; rather it is a tool of the management.

-: Organization For Budgetary Control : Organization Chart

Budget Officer
Budget committee

Purchase Manager Production Manager Departmental Managers Sales Manager Marketing Manager Accountant Development Manager Advertisement Manager

Budget Centre
Budget Manual Chart of Accounts Budget Period Key Factor

GENERAL MANAGER

Budget Officer

-: Rolling Budget :The concept of rolling budget or continuous budgeting is an attempt to updates budgets. The ICMA terminology defines it as the continuous updating of a short-term budget by adding, say, a further month or quarter and deducting the earliest month or quarter, so that the budget can reflect current condition. Rolling budget is used to indicate continuity in the budgeting process. Suppose a budget is prepared for a period of 1 year, then at end of the each month, the results of the previous months operations together with any new information or changes in business conditions are used to revise the budget for the next 11 months and to prepare a budget for one additional month beyond so that the budget always covers the next 12 months. Each month the budget rolls forward one month by adding one month to replace the month just past. The advantage of the rolling budget is that it makes planning a continuous activity.

-: Types of Budget :On the basis of duration Short-term Budget Long-term Budget Basic Budget On the basis of condition Current Budget Sales Budget Budget Production Budget Functional Budget Material Purchase Budget Capital Expenditure Budget Cash Budget

On the basis of coverage

Master Budget Fixed Budget On the basis of capacity Flexible Budget

-: Zero Based Budgeting (ZBB) :Zero based budgeting is a new technique of budgeting introduced first in USA in the year 1969. This system of budgeting was developed by Peter Pyhrr of Taxas instruments of USA. This technique of budgeting is more useful in government budgeting but can also be used in factories for non-manufacturing activities. Such as administration and distribution and selling activities. -: Definition of ZBB The ISMA terminology defines ZBB as a method of budgeting where by all activities are reevaluated each time a budget is formulated. Each functional budget start with the assumption that the function does not exist and is a zero cost. Increments of cost are compare with a increments of benefits culminating in the planned maximum benefits for a budgeted cost.

-: Basic Step In Implementing ZBB : Identify each function and activity of the organization-this is referred to as a decision packing. Evaluate each decision package so as to ensure that it is cost effective.

Compare each activity with possible alternatives.

Rank each activities-in some cases decision packages can be evaluated in terms of profitability or in any subjective terms using cost benefits analysis. Allocate resources in accordance with the ranking of activities and with the resources available to the organization.

-: Budget Report :The work of budget officer does not end with the preparation and approval of budgets. He has to prepare reports on a continuous basis so as to facilitate comparison of actuals with budgets. The budgets reports are send to various departmental managers showing favorable or adverse variance from the budget. Based on this the departmental managers will prepare a report to be submitted to the managing director pointing out the reasons for the variance. This unable remedial actions to be taken to set right unfavorable variance. The report so furnished will also help as a guide for future planning.

-: Principle of Budget Report : The report should be clearly hided and the period covered shown. The unit, wiz .,cash, tones, litter, etc, should be indicated. Like must be compared with like, and there must be no ambiguity of description. For example, it must be cleared whether sales report refers to deliveries made an invoice or to order received Information not relevant to purpose for which the report is prepared should be omitted so that conclusion from the report can be drawn quickly and with certainty. The report should not attempt to portray so much information that clarity is lost. If the information to be conveyed is complicated, more than one statement may be desirable. For example, to show actual sale compared with the budget, analysed over both areas and commodities, a separate statement for each analysis would improve clarity. The information included should be limited to the sphere of the person to whom it is furnished. The data to be given to a foreman would normally be confined to that affecting to his particular shop, but the factory manager would require broader information covering all departments for which he is responsible. Promptness is to be preferred to absolute accuracy, the purpose is not merely to convey information but to convey it promptly and to the person who has the authority to take action. All report should be reviewed periodically to ensure that they are still useful and to ascertain whether they should be expanded contracted or discontinued.

Thank You