Notes

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Organisation for budgeting
The setting up of a definite plan of organisation is the first step to be taken prior to beginning the real
work of installing budgetary control. The responsibility of eachexecutive must be clearly defined. There
should be no uncertainty regarding the point where the jurisdiction of one executive ends and that of
another begins.2)
Budget manual
The budget manual is a written document or booklet which specifies theobjectives of the budgeting
organisation and procedures. The chartered institute of management accountants, London defines it as “a
document which sets out, theresponsibilities of the persons engaged in, the routine of, and the forms
andrecords required for, budgetary control.” Following are some important matterscovered in a budget
manual:1)A statement regarding the objectives of the organisation and how they can be
achieved through budgetary control.2)A statement regarding the functions and responsibilities
of each executive by designation both regarding preparation and execution of budgets.3)Procedures
to be followed for obtaining the necessary approval of budgets. The authority of granting
approval should be stated in explicit terms.Whether one, two or more signatures are to be required on
each documentshould also be clearly stated.4 ) T i me -t a b l e s f o r a l l s t a ge s o f
b u d g e t i n g . 5)Reports, statements, forms and other records to be maintained.6)The
accounts classification to be employed. It is necessary that the framework within which the
costs, revenues and other financial accountsare classified must be identical both in the accounts and the
budgetdepartments.There are many advantages attached to the use of budget manual. It is a formalrecord
defining the functions and responsibilities of each executive. Themethods and procedures of budgetary
control are standardised. There issynchronisation. There is synchronisation of the efforts of all which
results inmaximisation of the profits of the organisation.3)
Responsibility for budgeting
1) Budget controller- the chief executive is ultimately responsible for the budget programme but it will be
better if the large part of the supervisoryresponsibility is delegated as budget controller or director. The
budgetcontroller or director should have knowledge of the technical side of the business and should report
directly to the president.2) Budget committee- the budget controller will be assisted in his work by
the budget committee. The budget committee will consist of heads of the variousdepartments such as
production, sales, finance etc. with budget controller asits chairman. It will be the duty of the department
will have his own sub-committee with executives working under him as its members
Budgetary control has the following specific objectives:
1. Planning:
ADVERTISEMENTS:
Budgets are the plans to be pursued during the designed period of time to attain certain
objectives in the organisation. Budgetary control will force the management at all levels to plan
various activities well in advance in the organisation.
Budgets are generally drawn on the basis of forecasts made about market forces, supply
conditions and consumer’s preferences in the organisation. This help in making and revising
business policies in the organisation.
2. Control:
ADVERTISEMENTS:
Budgetary control is an important instrument of managerial control in any enterprise. Budgetary
control helps in comparing the performance of various individuals and departments with the
predetermined standards laid down in various budgets.
Budgetary control reports the significant variations from the budgets to the top management in
the organisation. Since separate budgets are prepared for each department becomes easier to
determine the weak points and the sources of waste of time, money and resources.
3. Coordination:
Budgetary control involves the participation of a master budget, which helps in bringing
effective coordination among different departments of a business enterprise in the organisation.
It force the executive to make plans as a group in the organisation. Delays involved in the red
tapism and discussing matters with one another sets procedural wrangles aside.
4. Increase in Efficiency:
Budgetary controls lay down the standards of production, sales, costs and overheads taking into
consideration various internal and external factors. This compels and stimulates every
department to attain maximum efficiency over the use of men, machine, material, methods and
money.
5. Financial Planning:
Budgets are generally expressed in financial terms in the organisation. They provide the
estimates of expenditures and revenues in the organisation. This helps the management to make
plans about the flow of cash in such a way that it would never run short of working capital in the
organization. Cash budget is also useful to convince the financial institution that their loans will
be paid back in time.
Limitations of Budgetary Control:
1. Too much emphasis on budgeting in the organization may bring about rigidity in the
enterprise. It may deprive the managers of the flexibility they require in managing their
departments.
2. Budgeted estimates in the organisation are generally based on the price level at a particular
period of time. These estimates may become useless when there is either inflation or depression
in the market.
3. Sometimes budgets in the organization are tested as an end in themselves. Some people may
be extra cautious to function within the boundaries of budget figures rather than achieving the
enterprise objectives.
4. A budget, which allows liberal expenditure, may be used to hide inefficiency. For instance, a
department may be inefficient even though its expenses are within the budget limits in the
organisation.
5. Budgetary control in itself does not prevent deviation from appearing. It neither ensures
satisfactory results nor control automatically in the organisation. A deliberate effort has to be
made in this direction in the organisation.
6. Budgetary control in the organisation requires expenditure of time, money and effort.
Moreover, it is not easy to prepare various kinds of budgets in the organisation because of
obvious difficulties in forecasting to be used in budgeting.Write a note in this area. It's really easy to share with others. Click here ...