INTRODUCTION

‘PLANNING’ IS THE PRIMARY AND

‘CONTROL’IS THE LAST FUNCTION OF
MANAGEMENT.‘BUGETING’AND
‘BUDGETORY CONTROL’ OCCUPIES AN
IMPORTANT PLACE AMONG THE VARIOUS
TECHNIQUES WHICH ARE USED IN
PERFORMING THESE FUNCTIONS.
MEANING OF BUDGET
 A BUDGET IS THE MONETARY OR
QUANTITATIVE PRESENTATION OF
BUSINESS PLANS AND POLICIES TO BE
PERSUED IN THE FUTURE PERIOD OF TIME.
 ACC. TO I.C.M.A;LONDON

“A BUDGET IS A FINANCIAL STATEMENT

PREPARED PRIOR TO A PREDETERMINED
PERIOD OF TIME OF THE POLICY TO BE
PERSUED DURING THAT PERIOD FOR THE
PURPOSE OF ATTAINING GIVEN
OBJECTIVES.”
ACC. TO BROWN AND HOWARD
 “ A BUDGET IS A PRE DETERMINED
STATEMENT OF MANAGEMENT
POLICY DURING A GIVEN PERIOD
WHICH PROVIDES A STANDARD FOR
COMPARISON WITH THE RESULTS
ACTUALLY RECEIVED.”
MEANING OF BUDGETING
 IT IS A PART OF MANAGEMENT PROCESS
WHICH INCLUDES PREPARATION OF
BUDGET,BUDGET CONTROL,BUDGET CO-
ORDINATION AND ALL THOSE ACTIVITIES
THAT ARE RELATED TO BUDGET..
 ACC. TO SHILINGLAW:

“BUDGETING IS THE PREPERATION OF

COMPREHENSIVE OPERATING AND
FINANCIAL PLANS FOR SPECIFIC
INTERVALS OF TIME.”
ACC. TO WILLIAM J. BATTY
 “BUDGETING IS A KIND OF FUTURE
TENSE ACCOUNTING IN WHICH THE
PROBLEM OF FUTURE ARE MET ON
PAPER BEFORE THE TRANSACTION
ACTUALLY OCCUR”
MEANING OF BUDGETORY
CONTROL
 ACC. TO J. BATTY
“ BUDGETORY CONTROL IS A SYSTEM
WHICH USES BUDGET AS A MEANS
OF PLANNING AND CONTROLLING
ALL ASPECTS OF PRODUCING
AND/OR SELLING COMMODITIES OR
SERVICES.”
ACC. TO BROWN $ HOWARD
 “BUDGETORY CONTROL IS A SYSTEM OF
CONTROLLING COSTS WHICH INCLUDES
PREPERATION OF BUDGETS,CO-
ORDINATING THE DEPARTMENTS AND
ESTABLISHING RESPONSIBILITIES,
COMPARING ACTUAL PERFORMANCE
WITH THE BUDGETED AND ACTING UPON
RESULTS TO ACHIEVE MAXIMUM
PROFITABILITY.”
DIFF.IN BUDGET ,BUDGETING
$BUDGETORY CONTROL
 BUDGET $ BUDGETING ARE NARROW CONCEPT WHILE
BUDGETORY CONTROL IS A WIDER CONCEPT
 IF THERE IS A BUDGET $ BUDGETING, IT IS NOT
NECESSARY THAT THERE SHOULD BE BUDGETORY
CONTROL ALSO.BUT IF THERE IS BUDGETORY CONTROL
THERE MUST BE BUDGET $ BUDGETING.
 BUDGETS ARE BUSINESS ESTIMATES FOR FUTURE
PERIOD,BUDGETING IS THE PROCESS OF PREPARING
THESE ESTIMATES WHILE BUDGETORY CONTROL IS A
SYSTEM OF ACHIEVING PERFORMANCE ON THE BASIS OF
BUDGETS.
BUDGET AND BUDGETING ARE PARTS
OF PLANNING WHEREAS BUDGETORY
CONTROL IS LINKED WITH CO-
ORDINATION AND CONTROL.
BUDGET IS ADMINISTRATION OF
FINANCIAL PLAN.
 OBJECTIVES OF
BUDGETORY CONTROL
1. TO ENSURE PLANNING FOR FUTURE
2. TO CO-ORDINATE THE ACTIVITIES OF
DIFFERENT DEPARTMENT
3. TO OPERATE VARIOUS COST CENTERS AND
DEPARTMENTS WITH EFFICIENEY AND
ECONOMY.
4. ELIMINATION OF WASTES AND INCREASE IN
PROFITABILITY.
5. TO ANTICIPATE CAPITAL EXPENDITURE FOR
FUTURE.
 6. TO CENTRALISE THE CONTROL SYSTEM.
.
7.CORRECTION OF DEVIATION FROM
ESTABLISHED STANDARDS.
8.FIXATION OF RESPONSIBILITY OF VARIOUS
INDIVIDUALS IN THE ORGANISATION.
9. TO MAKE COST ACCOUNTING MORE
SYSTEMATIC RELIABLE.
10.TO DETERMINE VARIOUS SHORT TERM OR
LONG TERM FINANCIAL AND PHYSICAL
TARGET.
ADVANTAGES OF
BUDGETORY CONTROL
 MAXIMISATION OF PROFIT.
 CO-ORDINATION.
 SPECIFIC AIM.
 TOOLS FOR MEASURING PERFORMANCE.
 OPTIMUM UTILISATION OF RESOURCES(ECONOMY)
 DETERMINING WEAKNESS.
 CORRECTIVE ACTION.
 CONSCIOUSNESS.
 REDUCE COSTS.
 INTRODUCTION OF INCENTIVE SCHEME.
DISADVANTAGE OF
BUDGETORY CONTROL
 UNCERTAIN FUTURE.
 REVISION REQUIRED.
 DISCOURAGE EFFICIENT PERSONS.
 PROBLEM OF CO-ORDINATION.
 CONFLICT AMONG DIFFERENT
DEPARTMENTS.
 DEPEND UPON SUPPORT OF TOP
MANAGEMENT.
 IT REQUIRES TOO MUCH TIME AND COST.
 INSTALLATION OF
BUDGETORY CONTROL.
 CREATION OF BUDGET CENTERS.
 ARRANGEMENT OF ADEQUATE ACCOUNTING
RECORDS.
 GENERAL INSTRUCTION ABOUT BUDGET
TECHNIQUES.
 PREPERATION OF ORGANISATIONAL CHARTS.
 ESTABLISHMENT OF BUDGET COMMITTEE.
 PREPERATION OF BUDGET MANUAL
 DETERMINATION OF BUDGET PERIOD
•DETERMINATION OF KEY FACTOR
•DETERMINATION OF LEVEL OF
ACTIVITY.
•BUDGET REPORT.
CREATION OF BUDGET
CENTERS
 THE FIRST STEP IN BUDGETARY CONTROL IS
THE CREATION OF BUDGET CENTERS.
 BUDGET CENTER REFERS TO THOSE SECTIONS
OR DEPARTMENTS OF THE CONCERN WHICH
CAN BE DEFINED SEPERATELY FROM THE VIEW
OF BUDGETARY CONTROL.
 IT IS NECESSARY FOR COST
CONTROLPURPOSES.THE APPRAISAL OF
PERFORMANCE OF DIFFERENT PARTS BECOME
EASY WHEN DIFFERENT CENTERS ARE
ESTABLISH.
ARRANGEMENT OF
ADEQUATE ACCOUNTING
RECORDS
 THE ACCOUNTING SYSTEM AND
RECORDS SHOULD BE DESIGNED IN
SUCH A MANNER THAT THE
INFORMATION REQUIRED FOR THE
PREPERATION OF BUDGET AND
EVALUATION OF PERFORMANCE
MAY BE AVAILABLE EASILY AND
REGULARLY.
GENERAL INSTRUCTION
ABOUT BUDGET
TECHNIQUES
 ALL PERSON IN THE
ORGANISATION, WHO ARE LINKED
WITH THE COLLECTION OF
INFORMATION FOR BUDGET AND
ITS EXECUTION SHOULD BE GIVEN
NECESSARY EDUCATION AND
INSTRUCTION ABOUT BUDGET
TECHNIQUES.
PREPERATION OF
ORGANISATIONAL
CHART
 AN ORGANISATIONAL CHART SHOULD BE
PREPARED WHICH DEFINE THE
FUNCTIONAL RESPONSIBILITIES OF EACH
MEMBER OF MANAGEMENT TEAM.
 THIS CHART HELPS EACH OFFICIALS TO
KNOW HIS RESPONSIBILITY AND
POSITION IN THE ORGANISATIONAL
HIERARCHY.
 BUDGETORY CONTROL SYSTEM
MANAGING DIRECTOR

BUDGET COMMITTEE

BUDGET DIRECTOR OR CONTROLLER

PRODUCTION SALES FINANCE ACCOUNTS R&D

MANAGER MANAGER MANAGER MANAGER
MANAGER S
A
[PRODUCTION
PRODUCTION [] SSALES & RECEIPT &
BUDGET
& PLANT A
ADVERTISEMENT PAYMENY COST R&D
PLANTBUDGET]
UTILISATION BUDGET L BUDGET
COST BUDGET BUDGET BUDGET

E
ESTABLISHMENT OF
BUDGET COMMITTEE
 IN SMALL ENTERPRISE BUDGET MAY BE
PERFORMED BY ONE EXECUTIVE IN
CONSULTATION WITH VARIOUS
OFFICIALS.HOWEVER,IN LARGE
ORGANISATION A BUDGET COMMITTEE
WHICH REMAINS RESPONSIBLE FOR THE
WHOLE SYSTEMOF BUDGET
PREPERATION AND BUDGET CONTROL.
PREPERATION OF
BUDGET MANUAL
 IT IS A DOCUMENT WHICH SETS DOWN
THE RESPONSIBILITIES OF THE PERSON
ENGAGED IN FORMULATION OF BUDGETS.
 DETAILS INCLUDED IN MANUAL BUDGET
ARE
 OBJECTIVES &POLICIES OF BUDGETARY PLAN,
 DUTIES AND RESPONSIBILITIES OF VARIOUS
OFFICIALS
 THE LENGTH OF VARIOUS BUDGET PERIOD.
 DATES FOR SUBMITTING BUDGET ESTIMATES &
ACHIEVEMENTS.
DETERMINATION OF
BUDGET PERIOD
 THE BUDGET PERIOD IS ALSO DEFINED IN
BUDGETARY CONTROL,i.e, THE
LENGTHOF PERIOD FOR WHICH THE
BUDGET IS TO BE DRAWN.
 NO STANDARD TIME IS FIXED FOR ALL
TYPESOF BUDGETS BUT IT DEPENDS
UPON OBJECTIVES OF BUDGET,NATURE
OF BUSINESS,MARKET CONDITION ETC…
DETERMINATION OF KEY
FACTOR
 ‘KEY FACTOR’ IS KNOWN AS LIMITING
FACTOR BECAUSE IT EXPRESS THE
LIMITATION OR SHORTAGE OF A
PARTICULAR FACTOR SUCH
AS,SHORTAGE OF ORDER,NON –
AVAILABILITY OF
MATERIALS,SHORTAGE OF LABOUR
ETC…IT SHOULD BE NOTED THAT ANY
KEY FACTOR SHOULD NOT BE A
PERMANENT KEY FACTOR.
DETERMINATION OF
LEVEL OF ACTIVITY
 IN PREPARING BUDGET, LEVEL OF
ACTIVITY IS ALSO DETERMINED,i.e.,THE
LEVEL OF OUTPUT OR SALES THE
COMPANY CAN REASONABLY EXPECT TO
ACHIEVE DURING BUDGET PERIOD.THIS
LEVEL OF ACTIVITY IS ESSENTIAL IN
PRODUCTION PLANNING BECAUSE IT
DECIDES MATERIAL AND LABOUR
REQUIREMENT..
BUDGET REPORT
 THE PROCESS OF BUDGETORY
CONTROL COMPLETES WITH THE
SUBMISSION OF BUDGET REPORT.IT
PRESENTS ACTUAL RESULT
ALONGWITH COMPARISON WITH
BUDGET ESTIMATES..AND THUS
DEVIATIONS ARE MADE IF
NECESSARY.
The
process
ends
 TYPES OF BUDGETS.
I. CLASSIFICATION ACC. TO TIME
2. LONG TERM BUDGETS: THEY ARE
RELATED WITH THE LONG TERM
PLANNING OF BUSINESS.THE P[ERIOD
OF SUCH BUDGET VARIES BETWEEN 5
TO 10 YRS.THEY ARE PREPARED IN
TERMS OF PHYSICAL QUANTITIES.FOR
EX: R$D BUDGET AND CAPITAL
EXPENDITURE BUDGET.
2. SHORT-TERM BUDGET:
THESE BUDGETS ARE PREPARED GENERALLY
FOR A PERIOD OF 1 TO 5 YRS. THESE ARE
ALWAYS PREPARED IN MONETARY UNITS AND
ARE MORE PRECISE THAN LONG-TERM
BUDGETS.

3. CURRENT BUDGET:
THESE BUDGETS ARE PREPARED FOR A PERIOD
OF ONE MONTH TO TWELVE MONTH..THE MAIN
OBJECTIVE OF THIS BUDGET IS TO MAKE
ADJUSTMENTS IN SHORT-TERMBUDGETS
ACCORDING TO CURRENT CONDITIONS.
II. ON THE BASIS OF FLEXIBILITY:
1. FIXED BUDGET: IT IS ALSO KNOWN AS
STATIC BUDGET.IT IS PREPARED FOR
SINGLE LEVEL OF ACTIVITY AND SINGLE
SET OF BUSINESS CONDITION.ACC.TO
I.C.M.A,LONDON,”FIXED BUDGET IS A
BUDGET WHICH IS DESIGNED TO REMAIN
UNCHANGED IRRESPECTIVE OF THE
LEVEL OF ACTIVITY ACTUALLY
ATTAINED.”
2. FLEXIBLE BUDGET
FLEXIBLE BUDGET IS THAT BUDGET WHICH
PRESENT COST , REVENUES AND PROFITS AT
VARIOUS LEVELS OF BUSINESS ACTIVITY ,
I.E., VARIOUS VOLUMES OF OUTPUT AND
SALES . ACCORDING TO I.C.M.A , LONDON , “A
FLEXIBLE BUDGET MAY BE DEFINED AS A
BUDGET WHICH IS DESIGNED TO CHARGE IN
ACCORDANCE WITH LEVEL OF ACTIVITY
ATTAINED.”
 Difference between flexible and
fixed budget.
Basis Fixed Budget Flexible Budget
Rigidity A fixed budget A flexible budget
remains the same is recast to suit
Irrespective of the the change
changed situation. circumstances.
Conditions It assumes that This budget is
conditions will changed if level of
remain constant activity varies.
Basis Fixed budget Flexible budget
Cost In this cost are not The cost are studied
classification classified acc. as per their nature
to their nature
like fixed variable.
Forecasting Forecasting of It helps in making
accurate result is accurate forecasts.
difficult
Cost Cost cannot be Cost can easily be
ascertainment ascertained due to ascertained
change circumstances
III. ON THE BASIS OF
FUNCTION
1. MASTER BUDGET IS A CONSOLIDATION
SUMMARY OF THE VARIOUS FUNCTIONAL
BUDGETS . ACCORDING TO SOME EXPERTS ,
BUDGETED PROFIT AND LOSS ACCOUNT AND
BUDGETED BALANCE SHEET MAY BE TREATED
AS MASTER BUDEGETD . IN BRIEF , MASTER
BUDGET DEPICTS THE PICTURE OF TOTAL
PLANS DURING THE BUDGET PERIOD AND IT
COVERS INFORMATION RELATING TO
PRODUCTION , COST , SALES , PROFIT , ETC .
2.FUNCTIONAL BUDGETS:
THEY ARE ALSO KNOWN AS
‘DEPARTMENTAL BUDGETS’ OR
‘SUBSIDIARY BUDGETS’. ALL THOSE
BUDGETS ARE PLACED IN THIS
CATEGORY WHICH ARE PREPARED
EITHER ON THE BASIS OF FUNCTIONS
OR DEPARTMENTS IN A BUSINESS
CONCERN.THE GENERAL
 FUNCTIONAL BUDGETS

OPERATING BUDGETS FINANCIALBUDGETS

SALES BUDGET CASH BUDGET

PRODUCTION CAPITAL
BUDGET EXPENDITURE
BUDGET
COST BUDGET
 SALES BUDGET
 SALES BUDGET IS A FORECAST OF SALES
DURING BUDGET PERIOD.IT PRESENTS
THE SALES PROJECTION IN TERMS OF
QUANTITY, VALUE, PERIOD,SALES
AREA ,PRODUCT,ETC.IT SHOULD BE
NOTED THAT SALES BUDGET IS A
STARTING POINT OF BUDGETARY
SYSTEM AND ALL OTHER BUDGETS IN A
BUSINESS CONCERN ARE PREPARED ON
THE BASIS OF SALES BUDGET.
PRODUCTION BUDGET
 IT IS A FORECAST OF TOTAL OUTPUT OF
THE WHOLE ORGANISATION BROKEN
DOWN INTO ESTIMATES OF OUTPUT OF
VARIOUS PRODUCTS TO BE PRODUCED
DURING BUDGET PERIOD.ITS IS
BIFURGATED IN TWO PARTS ONE SHOWS
ESTIMATE IN VOLUME OR QUANTITY
AND OTHER SHOWING PRODUCTION
COSTS.
 COST BUDGET
 THIS BUDGET IS PREPARED AFTER
DETERMINATION OF THE VOLUME
OF OUTPUT IN PRODUCTION
BUDGET AND IT PRESENTS AN
ESTIMATE OF COSTS OF OUTPUT
PLANNED FOR A BUDGET PERIOD.
 CASH BUDGET
 IT IS A STATEMENT WHICH GIVES
AN ESTIMATE OF THE ANTICIPATED
RECEIPT AND PAYMENTS OF CASH
DURING BUDGET PERIOD .IT ALSO
GIVES INDICATION FOR THE
ARRANGEMENTS OF SHORTAGE
AND UTILISATION OF SURPLUSES.
CAPITAL EXPENDITURE BUDGET
 THIS BUDGET GIVES AN ESTIMATE
OF THE AMOUNT OF CAPITAL THAT
MAY BE REQUIRED FOR
PURCHASING FIXED ASSETS
NEEDED FOR FULFILLING
PRODUCTION REQUIREMENTS AS
SPECIFIED IN THE PRODUCTION
BUDGET….
PERFORMANCE
BUDGETING
 It has been defined as a “budget based on functions,
activities and projects.”
 Acc. To The National Institute Of Bank Manager,it is a
process of analyzing,identification,simplification and
crystallizing specific performance objectives of a job to
be achieved over a period in the framework of the
organizational objectives,the purpose and objectives of
the job.
 It requires preparation of performance report and then
compare budgets and actual data and then taking
variances.
Process of Performance
Budgeting
 Development of performance criteria for various
programmes;
 Assessment of performance of each programme
and by each responsibility unit;
 Comparison of the actual performance with the
budge;
 Undertaking periodic review of the programme
with the view to make modification as required