CHAPTER ONE

INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Planning and control are major activities of management in all
organizations. Budgets are central to the process of planning
and control. The involvement with budget places the
management accountant s a key player in the provision of
management information. A budget is one of the useful tools for
monitoring the implementation of a correctly cost operational
plan of entity. Historically, budgets emerged out of a need to
control and monitor the projected income and the utilization of
funds by entities.
Performance measurement and management control are critical
components of improving organizational performance. In this
study, budget is set within an overall organizational planning
and control framework. A common sub division of the wider
planning and control framework in organizations is strategic
planning, management control and operational or task control.
Strategic planning is the process of deciding on the goals of the
organization and the formulation of the broad strategies to be
use in attaining these goals. It is the responsibility of top
management. It is creative and involves identifying a company’s
strengths and opportunities to grow while minimizing
weaknesses and threats. It has a long-term orientation and
looks outside the organization at customers and competitors.

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Management control is the process by which management
assures that the organization carries out its strategies. It is
more short-term, is focused on middle managers and is more
rhythmic and routine.
Operational or task control is the process of assuming that
specific tasks are carried out effectively and efficiently. The time
scale may be very short-term and addresses targets of junior
management. Most often is based on the use of non-financial
measures and may be based on clearly defined input/output
relationships.
Generally, an organization’s objectives are expressed in one and
three to five year time frames and are informed by its mission
and vision. Traditionally, objectives are based on financial
measures but increasingly are inclusive of non-financial
measures. Strategies are the ways in which the organizations
expect to achieve success. Depending on the uncertainty of the
environment strategies can be developed as a “plan” or a series
of decisions made in a period of time but either way, for a
stipulated time period their outcomes are consistent with the
organization’s objectives in that they are expressed in financial
and increasingly, non-financial terms.
Broadly, management control systems serve as the foundation
for decision-making in all organization. While the incentive
structures in private organizations differ, management control
systems provide the same structural support for the activities

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and goals of the organization. Ultimately, organizations adopt
management control systems with the expectation that they will
facilitate better decision-making and leads to improved
organizational performance. Over time, the, one would expect
firms to adopt their management control systems in an effort to
maximize firms performance. To date, empirical research has
not fully examined the effects of management control systems
and planning on performance.
Pervious studies suggest budgets are very unpopular with
managers. There is scant evidence linking budgetary control
and planning directly to organizational performance, the focus
of this study.
The study thus provide an analysis of budgeting process,
control and planning among organizations in Nigeria and a
particular reference to industrial sector with the ultimate aim of
demonstrating the role of management accountant in the
process. The study will examine the effects of budgeting as tool
of management control and planning in Femstar and Company
Limited in Ajara Industrial Estate Lagos.
1.2 STATEMENT OF THE PROBLEM
The budget is perhaps the most important instrument of
governance. But the concept, the policy and legal framework,
the process and how it can be analysed and evaluated is not
understood by majority of managers.

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Budgeting on the other hand is simply the process of preparing
a budget. It refers to the procedures and mechanisms by which
the budget is prepared, implemented and monitored. Budgeting
is very crucial for the growth of the organizations.
Good budgeting can lead to productivity growth and
profitability. But to prepare a good budget requires a
responsible leadership, special staff assistance, broad accurate
and reliable information, completion plan, a financial calendar
and effective monitoring and control over the execution of the
budget plan. Research have however shown that 80% of the
companies in Nigeria are dissatisfied with their planning and
budgeting with their planning and budgeting processes and it
has been estimated that these processes use up to 20% of all
management time (Salihu, 2005).
The study thus provides an analysis of the budgeting process
and planning in private organization in Nigeria. It will discuss
budgets in a wider planning and control context and discuss a
number of issues surrounding the generation and use of
budgets.
1.3 OBJECTIVES OF THE STUDY
The broad objective of the study was to examine effects of
budgeting as a tool of management control and planning in an
organization with particular reference to Femstar and Company
Limited. In order to achieve the broad objective, the specific
objectives, the study seek to achieve are:

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 i. To provide a theoretical overview of budgeting, such as the
various methods and format of budgeting.
ii. To examine the characteristic of Femstar Company of
Nigeria Limited, Lagos.
iii. To examine the legal and institutional framework for
government budgeting in Nigeria
iv. To examine the distribution of roles in the finance
department of Femstar Company of Nigeria Limited Lagos.
v. To examine problems of budgeting monitoring and
evaluation in Nigeria.
vi. Lastly, the study will examine the causes of under and over
speeding in Femstar Company of Nigeria Limited during the
period being studied. It will proffer recommendations of the
corrective steps that should be taken.
1.4 RESEARCH QUESTIONS
Taking cognizance of the above, the research problems can be
epitomized by means of the following questions:
i. How was the budget developed?
ii. To what extent the Femstar Company of Nigeria Limited
finance sources of revenue attained.
iii. To what extent the budget problem marred the performance
of budget in private organization in Nigeria?
iv. What are the roles of finance department in Femstar
Company of Nigeria Limited?
v. To what extent the budget can influence the design of the
budget objectives in the budget-planning phase?

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1.5 RESEARCH HYPOTHESIS
The following hypothesis will be tested to provide answers to
the above question:
HYPOTHESIS I
Ho: Budgeting and budgetary control does not require the
support of top management.
H1 : Budgeting and budgetary control requires the support of
top management
HYPOTHESIS II
Ho: Budgeting and budgetary control is not an effective
means of measuring an organization’s performance.
HI : Budgeting and budgetary control is an effective means of
measuring an organization’s performance.
HYPOTHESIS III
Ho: Budgeting and budgetary has not brought accountability
on the part of management.
Hl . Budgeting and budgetary has brought accountability on
the part of management.
1.6 METHODOLOGY OF THE STUDY
In carrying out this research work, both primary and secondary
sources of data will be adopted. The primary source of data that
will be used is the questionnaire that will be administered to
the management and staff of Femstar Company Limited. In
addition, the researcher had personal interview with various
persons who are not member of Femstar Company.

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Secondary source of data used includes textbooks, documented
records relevant to the study, example the annual report of
Femstar Company Limited and the past budget statement of
the company.
1.7 SIGNIFICANCE OF THE STUDY
Budget is a reflection of the operational plans of an entity. A
budget is an action plan for a specific period of time covering all
departments/functions/facets of an organization and
containing targets to be achieved both in physical and financial
terms, which serve as important criteria of performance.
Previous research has tended to focus on the antecedents of
budgetary control, rather the effects of budgetary control. For
example, Simons (1987) found that a firm’s strategy was related
to its choice of control systems. More recently, Widener (2007)
finds that, in certain strategic conditions, information-
processing needs are such performance measures both
interactively and diagnostically suggesting multiple inter-
dependent and complementary relations among the control
system.
While this area of research is necessary in understanding how
the degree of budgetary control is established, it is also
important to understand how budgetary controls affect private
organization performance. This study informs discussion about
the appropriate use of budgeting.

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This study also has the potential to contribute to the efforts to
address concerns regarding the current state of business
finance and management in Nigeria.
The result of the study will be very useful to organizations and
managers in private organization to be informed about the
relationship between control systems and performance.
1.8 SCOPE AND LIMITATION OF THE STUDY
The research work is carried out on Femstar Company of
Limited. The study covers the process, formation and budgetary
control in Femstar Company Limited and it ranges from 2001-
2006 accounting years.
The major limitations to the study are time for completion of
the study and financial constraints. The time stipulated for the
study is shorter.
1.9 ORGANIZATION OF THE STUDY
The project is plans to be divided into five chapters. Chapter
one covers the introduction, statement of problem, objectives of
study, significance of study, research methodology, scope and
limitation of study, research questions and research
hypothesis.
Chapter two covers the literature review and theoretical
framework of budgeting. It also includes overview of Femstar
Company Limited budgeting system.
Chapter three explains research methodology
Chapter four cover data and interpretation of results

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Chapter five contains summary, findings, recommendations
and conclusion of the study.
1.10 DEFINITION OF TERMS
Budget: Is a plan quantified in monetary terms prepared and
approved prior to a defined period time, usually showing
planned income to be generated and/or expenditure to be
incurred during that period and the given objective employed to
attain a given objective.
Operational Plan: Is derived from a broad strategic plan of an
entity.
Budgetee: Is a subordinate manager that arranges a budget
proposal according to the requirement of the superior manager.

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 CHAPTER TWO
LITERATURE REVIEW

2.0 INTRODUCTION
Budgeting and budgetary control is an important topic that
many authors and researchers have developed into and despite
their various effects and effort to enlighten the public about the
use and importance of budgetary, several enterprises still
collapse due to lack of proper budgetary planning and control
system practical in most organizations. Budgeting ensures that
planning and control ensures that planning is efficiently carried
out and controlled in order to achieve the aims and objectives of
an organization.
The intention of this research is to wale through the collection
of literatures available and accord worthy references to the
scholars who so enrich the page by making than available to
suit the problem areas identified in the scope of study for a
better appreciation of the issues involved. Many authors have
defined budgets and few of the definitions will be given below.
Lynch (1997) defined budget as a detailed plan outlying the
acquisition and use of financial and other resources over some
given period of times. Institute of Chartered Marketing
Association (ICMA) (1996) stated that budget is a financial
and/or Quantitative stated prepared and approved prior to a
defined of time; the policy to be pursued for the purpose of
achieving a given objective. It may include income, expenditure
and employment of capital.

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A budget can be taken as a managerial tool incorporating
organizational and financial planning, analysis of the
behavioural chapter of cost, the setting of objectives, evaluation
of performance etc. it is a formal Quantitative statement of
action and it gives added purpose of accounting by increasing
the effectiveness in the day to day control of the operations of
an enterprise.
Horngen (1997) postulated that budget is put in place to
carryout a variety of functions which include planning,
evaluating performance, coordinating activities, implementing
plans, communicating, motivating and authorizing actions.
The development of adequate plans and establishment of
realistic profit objectives necessitates a considerable amount of
detailed planning of activities for all places of operations.
Usually these activities are designated as budgeting, which
some companies are required as profit planning operations.
Lucey (1998) opined that budget is a plan quantified in
monetary terms prepared and approved, prior to a defined
period of time. Usually showing planned income to be generated
and/or expenditure to be incurred during that period and the
capital to employ to attain given objective.
He further stated that budgeting process required that feasible
detailed budgets are developed covering each activity
department or function in the organization. In this way the
budget process provides for the coordination of various

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activities, departments and functions of the organizations so
that each of the operation contributes to the overall plan. A
well-coordinated budgeting system must be put in place, which
will satisfy the interrelationship between the various sections
and departments in the organization towards the achievement
of the stated goals and objectives.
Chartered Institute of Management Accountant (CIMA) defined
a budget as a plan expressed in monetary terms which is
prepared and approved prior to the budget period and may be
show income, expenditure while capital to be employed may be
drawn up to show incremental effects on former budgeted or
actual figures.
Omolehinwa (2000) defined budget as the plan of the dominant
individuals in an organization expressed in monetary terms and
subject to the constraints imposed by other participants and
the environment indicating how the available resources may be
utilized to achieve whatever the dominant individuals agree to
be the organization priority.
Sord et al. (2004) stressed that budgeting is a management tool
particularly useful is coordination the planning and control
activities of all functions of an enterprise. He further
maintained that budgeting is one than thus, because budgeting
effectiveness operates in conformity with the principles and
broad patterns of practices thereby making the maximum
delegation of responsibility to successive lower levels of
management and at the sometimes-making provision for

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integrated and effective control possible. Budget is a formal
statement of the financial resources set aside for carrying out
specific activities of the organization with in a specific period of
time. It can be deduced from the above quoted definition that
budget is a plan of action and it has to do with forecasting the
future and it must be quantified in monetary value, which must
have been prepared prior to date. It must also match the
income to be generated with the expenditure to be incurred
during the period it relates with. A budget should have all that
is specified above if it has to be good and effective for
management.
2.1 FORMS OF BUDGET
A budget could either be fixed or flexible. A fixed budget is
designed to remain unchanged irrespective of the level of
output or turnover actually attained. The purpose is to lay-
down the major objectives of the enterprise and coordinate and
define the major objectives that must be achieved by the
sectional or functional part of the organization.
A flexible budget on the other hand is designed to adjust the
permitted cost level to suit the level of activities in behavioural
between fixed and variable costs in relation of fluctuations. In
flexible budget, costs are divided between those, which tend to
vary with output and have which tend to remain fixed
regardless of volume of output, over an expected range of
activities. Its usefulness is that cost under it can be related to

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all possible level of operating activity and it recognizes that
different level in the course of business.
2.2 BUDGETARY CONTROL
The Institute of Chartered Marketing Association (ICMA) (1982)
defined budgetary control as the establishment of budget
relating to the responsibilities of executives to the to the
requirements of a policy and the continuous comparison of
budgeted with actual result wither to secure by individual
actions, the objectives of that policy or to provide a basis for its
revision. Budgets are therefore importantly forward looking,
they provide yardstick for the purpose of comparison.
Budgetary control is the process of setting standards, receiving
feedback on actual performance deviates significantly from the
planned performance. It therefore relates to the use of budget
as control devices whereby predetermined plan/standard
output, income and expenditure are compared with actual
attainment so that if necessary, corrective actions may be
taken.
Budgetary control in a business organization is the process or
exercising a restraining a directly influence over the activities of
the business system. It is the planning in advance of the
various functions of a ministry; department or government
agencies do that the unit can be controlled. It relates current
expenditure and revenue with those of prior year-end
determining the variances. Budgetary policy emphasizes the

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control of plans to identify variances upon which corrective
actions can be taken.
2.3 OBJECTIVE OF BUDGETARY SYSTEM
The objectives of budgetary control is not to find faults but is a
means of locating those activities and people in the organization
in need of help so that assistance can be more effectively
utilized. The objectives which budgetary control stands to
achieve are as follows:
i. To force the management to think ahead. This makes
coordination of all activities towards the achievement of the
budget less cumbersome.
ii. To provide a yardstick where actual result may be compared.
iii. To centralize control and decentralize responsibility.
iv. To promote cooperation and coordination among directors or
managers in the attainment of predetermined targets.
iv. To ensure availability of sufficient funds for the efficient
operations of the organization.
v. To aid management in decision making
vi. To plan and control expenditure in order to achieve
maximum benefits.
Pandy also enumerated the major purpose and objectives of
budgetary system, he summarized them into five (5) major
categories viz:
i. To state the firms expectation in clear and formal terms in
order to avoid confusion and facilitate their attainability.

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ii. To coordinate the activities and efforts in such a way that
resources is maximized.
iii. To communicate the expectations to all connected with the
firm so that such are understood.
iv. To provide a detailed plan of action for reducing uncertainty
and for the proper direction of individuals and group effort to
achieve goals.
v. To provide a means of measuring and controlling the
performance other.
2.4 ADVANTAGES OF BUDGETING AND BUDGETARY
CONTROL
There are a number of advantages to budgeting and budgetary
control system among which are:
i. It compels management to think about the future, which is
probably the most important feature of budgetary planning and
control system by setting out detailed plans for achieving the
targets for each department, operation and each manager in
order to anticipate and give the organization purpose and
direction.
ii. It promotes coordination and communication.
iii. It clearly defines areas of responsibility by making managers
of budget centers to be made responsibility for the achievement
of budget targets for the operations under their control.
iv. It enables remedial actions to be taken as variances emerge.
v. It motivates employees by participating in the setting of
budgets.

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vi. It improves the allocation of scarce resources.
vii. It provides a basis for performance appraisal (variance
analysis). A budget is basically a yardstick against which actual
performance is measured and assessed. Control is provided by
comparison of actual results against budget plan. Departures
from budget can then are investigated and the reasons for the
differences can than be divided into controllable and non-
controllable factors.
2.5 DISADVANTAGES OF BUDGETING
In as much as budgeting is a good tool for management to
achieve organizational objectives. There some disadvantages
inherent in budgeting among which are:
i. Employees may regard it as a pressure or negative
instrument rather than as a procedure to assist the
executive to do a better job.
ii. Budgeting techniques are close identified with the
management control process. It might therefore be
incorrectly perceived that it can replace management
whereas there is no substitute for good management.
iii. Deficient organizational structure may impair the success
of budgeting because of non-responsibility accounting
iv. If care is not taken, motivation may be misplaced.
v. The setting of realistic estimates may be difficult
particularly the level of attainment.
vi. Forecasting may be carried too far into the future and the
may reduce its level of accuracy.

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2.6 CONDITION FOR SUCCESSFUL BUDGETING
The benefits from budgetary system do not automatically arise.
It has been found out that a budget is more likely to be
successful if the following conditions are met.
i. The involvement and support of top management.
ii. Clear-cut definitions of corporate objectives within which
the budgeting system will operate.
iii. Assessment of budgeted label of attainment to ensure that
it is a realistic and achievable taking into accounts the
managers level of authority and span of control as well as
effective communication system in the organization.
iv. The recognition of responsibility of control in the
establishment of budget centers taking into account the
various changes in the operation coordinators.
v. The use of available techniques such as operational
research, computer science, social science etc. to ensure
that budgets are realistic as much as possible.
vi. The correct choice of budget period and the recognition of
the moist appropriate period budget for the purpose of
control and reviewing.
vii. An appropriate accounting and information system, which
will include the records of expenditure and performance.
2.7 PREPARATION OF BUDGETS
Budgets are usually prepared from the bottom of the top in that
various departments are involved. For example in sales budget,
the divisional or area budgets will be prepared first and the

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total budget based there on. Also, before production budgets for
materials labour and plant capacity in order to ensure that a
shorting of one of these factors does not interfere with the
production plan as a whole.
In preparing budgets, the objectives and goals of the enterprises
should be considered; the basic requirement for an effective
budget is that the organization set the overall goals for the
period. These goals must be quantifiable and they must be
based on the organizations long and strategic plan. A budget
should not be rigid but fragile to suit all condition.
2.8 SYSTEMS IN BUDGETING
There are two ways of budgeting namely:
1. Periodic Budgeting
2. Continuous Budgeting
2.8.1 PERIODIC BUDGETING
This concerns the operations of a fixed budget over a certain
period of time usually a year. When it is adopted the budget
becomes fixed for the duration of the period concerned and
revisions are not allowed till the end of the budget period.
2.8.2 CONTINUOUS BUDGETING
This refers to a system of continuously updating period in the
budget and determining a budget for the correspondence time
period. As one period is completed, another is forecast so that
there is always one-year budget available.

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2.9 ORGANIZATION FOR BUDGETARY CONTROL
2.9.1 THE PREPARATION OF ORGANIZATION CHART
This defines the functional responsibilities of each members of
management and the organization his/her position and
responsibilities as well as his/her relationship with the other
employees in the company.
2.9.2 BUDGET PERIOD
It is defined as the time period to which the plan of actions
relates. Budgets period covers a fixed period of time usually one
year. They will be divided into shorter-term periods known as
control period for purpose of reporting control with a one-year
period, budget controls may be 4 weeks i.e. 13 period each year
or a month (12 periods each year). Long term budget e.g.
capital expenditure budgets may be for a period of up to (5) five
or (10) years or even more control periods will not be applied to
these other arrangements for fixed amount expenditure control
should be made.
Budget period is a useful yardstick that all management uses
in evaluating performance and corrective actions for proper
planning and control of organizations.
2.9.3 BUDGET MANUAL
ICMA defines a budget manual as a procedure of a rule book,
which sets outstanding instructions governing the
responsibilities of persons and the procedures, forms and
records relating to the preparation and use of budget.

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This document charts the organization details the budget
procedures, contains account codes for items of expenditure
and revenue. It may include a time table prepared and dates
when they should be presented to the budget.
2.9.4 BUDGET COMMITTEE
This may consist of senior members of the organization e.g.
departmental heads and executives (with managing directors as
the chairman). Every department of the organization should be
a representative from sales, marketing, production etc. The
overall responsibility for budget committee normally chained by
this executive to the organization with the department
heads/senior managers as members. The purpose of the
committee is to:
i. Ensure the active cooperation of department heads to act
at a forum in which different opinion can be argued out
and reconciled.
ii. Ensure that managers in the organization understand
what other departments are trying to do.
iii. Review departmental budgets.
iv. Establish long-term plans around which the budget
should be built and then to identify budget objective.
v. Coordinate preparation of budgets including the issue of
manual.
vi. Issue timetables for the preparation budgets.

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2.9.5 BUDGET OFFICER
He controls the budget administration on a day-to-day basis.
He will be responsible to the budget committee and should
ensure that its decisions are transmitted to the appropriate
people and that relevant data and opinions are presented for
consideration. He will normally also have the vital job of
education and selling of the budget idea. The budget officers
need to have technical knowledge of the business. His job also
involves liaising between the budget committee and managers
responsible for budget preparation dealing with budgetary
control problems ensuring that dealings are met etc.
2.9.6 BUDGET CENTERS
These are units responsible for the preparation of budgets can
be prepared and control exercised. Each area selected as
budget center must be clearly defined and should be the
natural responsibility of one particular manager. It budget
center may be encompass several cost centers.
It is usually under the control of a line manager or supervisor
whose duty is to see that the center operates in accordance
with the budgets.
2.10 TYPES OF BUDGETING SYSTEM/TECHNIQUES
Budgeting requires the need to follow a particular technique or
system. This orientation has influenced the introduction of a
number of techniques, which have evolved through three
phrases of budgets orientation namely: planning, management
and control.

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Over the decades, budgeting has experienced significant
changes in the mid 1960s in the United states of America, the
emphasis was on planning programming budgeting system
(PPBS) in the mid 1970s, the emphasis was placed on
management by objectives (MBO) while in the late 1970s the
reform was zero base budgeting (ZBB). Each reform is
significant and shall be treated as follows:
a. Traditional or Incremental Budgeting
b. Performance Budgeting
c. Planning Programming Budgeting System
d. Zero Based budgeting Technique
e. Rolling Technique
2.10.1 TRADITIONAL BUDGETING
This is related to the theory of instrumentation, which involves
making or preparing budget in a bit or increment over a base
year budget. In this type of budgeting, attention is directed
towards changes that occur between existing appropriation and
proposed expenditures. Incremental budgeting does not require
the budget participants to look beyond one year or ask them
what they intend to do with the approved votes. The main focus
of this approach was that money is pent on.
Therefore, the aim of this approach is to control spending by
laying emphasis on proper accounting for resources utilized.
Traditional method assumes that a current year project and
budget resources are essential and should be continued in an
efficient manner.

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2.10.2 PERFORMANCE BUDGETING APPROACH
This is a budget based upon function, activities and projects.
Here, the main characteristics are to relate performance level
with estimate and ensure that the activities are geared towards
achieving objectives. Thus approach focused on output i.e. how
well to meet an assigned responsibility.
Here the functions, programme and activities to be undertaken
are well-defined and as such facilities that classification of
budgets. The budget is drawn in such a way that it will give
room for comparison between the fund requirement and the
work to be performed for each programme. It was introduced by
the Hoover commission in 1949 in the United States of
America.
2.10.3 PLANNING, RESEARCH AND BUDGETING (PPBS)
This system of budgeting is mostly used in the public sector,
which focuses on the output of an organization rather than
specific inputs. The objective was cost with accomplishment
and project how far it could go based on proper evaluation of
performance. In corporate management, it identifies alternative
policies and prevents their duplication while also providing
efficient control of those policies. It is useful for planning and
development programme for a long period of time.
It embraces several established concepts and analytical
techniques within the framework of a systematic approach to
decision-making, planning, management and control.

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This system of budgeting was adopted in Nigeria in 1980s but
its application practice differs from one country to another. The
essence of PPBS is the relationship between resources provision
and physical achievement. PPBS was developed to provide
rational and systematic approach to identify and evaluate the
course and consequences of strategic objective to time phase,
man, materials, needs and financial requirements.
2.10.4 ZERO BASED BUDGETING (ZBB)
Zero Based Budgeting has been described as an operating,
planning and budgeting process which requires each manager
to justify his entire budget from reasons and significance why
he should spend any money at all. This approach requires that
all activities be identified as decision package, which will be
evaluated by systematic analysis and ranked in order of priority
or importance. (Frederick, 2001)
After a budgeting system has been in operation for a long time,
there is a tendency for next years budget to be justified by
present. Proper analysis of this form of budgeting takes into
account all the changes, which should affect the future
activities of the company.
Even using such an analytical base, some businesses find that
historical comparison, and particularly the current level of
constraint on the resources can inhibit innovate changes in
budget. This can cause a severe handicap for the business
because the budget should be the first year of the long-range
plan.

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The concept of zero-based budgeting is simple. It start from the
scratch i.e. every activity in the organization must be examined
and justified and any alternative must be considered and the
result evaluated. This means that each manager must prepare
a report for each activity, possible alternative and the
consequence of not carrying out those alternatives. (Frederick,
2001)
2.10.5 CONTINUOUS OR ROLLING BUDGET
Rolling budget can be defined as the continuous updating of a
short-term budget, by adding a specific period (Quarterly or
half yearly) and also deducting the earlier period. (Holme and
solvang, 1991). The reason behind this “front and back
movement” is for the budget to reflect current conditions at any
given period. This budget is used to overcome the problems
resulting from global unexpected or unfavourable changes in
economic or technological development.
It is an attempt to prepare targets and plans, which are more
realistic and certain, particularly with regards to price level by
shortening the budget period instead of preparing a budget
annually.
There would be a project for every two, three of four months.
This method of budgeting is not common with the public sector
but with the private sector.
2.11 BUDGET IMPLEMENTATION AND CONTROL
In considering the process of budget implementation and
understanding of the control function is very important.

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Franklin G. M. (1993) state “To control, you set a goals, maker
plans, implement, get a report of what is going on, make new
plans if need be, and try to guide things in the direction you
want them to go, and hope fully you arrive at your goals.
Eronimi O. (1999) defines budgetary implementation and
control as monitoring of performance against the budget.
According to Johnson (1998) budget implementation and
control is concerned with ensuring that actual expenditure is in
line with budget amount and that the objectives and levels of
activities envisage in the budget are achieved. But Institute of
Cost and Management Accountants (ICMA) also defines budget
implementation and control as the establishment of budget
relating to the requirement to secure by individual action by the
objectives of that policy or to provide a basis for its revision or
delay Simeon Ibitoye (1995).
Furthermore, budget implementation and control can be
defined as the continuous comparison of actual with budgeted
result so that corrective measure could be taken on adverse
variance while favourable variances are further explored to
advantage.
2.11.1 PLANNING AS A TOOLS OF MANAGEMENT
One of the primary functions of management is planning,
planning involves the activities to determine ways of reaching a
desired future state and this involves skill of anticipating
influencing and controlling the nature and direction change
(Simon, 1995).

27
Planning is essential to accomplish goals; it reduces
uncertainty and provides direction to the employees by
determining the course of action in advance. Budgeting could
be said to be a formalized planning of management, intended
action and desired results.
Formalized planning indicates the responsibility of management
and provides an alternative to grouping without direction.
Though planning required services, stages are necessary for
proper planning.
Thus, however to a large extend depend on the objectives and
size of the organization. The stages are:
- To established or set a goal
- To evaluate and control
- To define the present situation
- To develop a plan or strategy for the attainment of objectives
-To identify the aids and barrier to the goal
It should be noted that it is when all these strategies are
carefully stated and implemented that a good plan could said to
be put in place, and that is when some elements of certainty
course into the actualization of set goal.
2.12 BENEFITS OF BUDGETING IN AN ORGANIZATION
The importance of budgeting in an organization can be
evaluated based on the benefits derivable from property
concerned and appropriately approved or executed budgets.

28
Lucey (1988) stated that narrowly concerned budgetary system
or those that are insensitively applied might produce
dysfunctional behaviour/effect. It has been confirmed that will
organized and thought out schemes can bring positive and
significant benefit among which are:
A. COORDINATION
A coordination and thoroughly prepared budget will improve
the ability of the management to coordinate the activities of
various units towards the achievements to set of goals for the
organization. The effects of various department budgets are
related to one another so that each aspect contributes to the
overall plans.
The budgeting process requires that feasible detailed buckets
be developed covering each activity, department or function in
the organization. A master budget performance these functions
of coordination in effect, a well coordinate budgeting system,
helps to ensures that for example, inventory and purchasing
plans are geared to production requirement, that production
schedules are related to sales budget, that arrangements are
made for overdraft facility is necessary to coincide with the cash
flow budget and similar relationship.
B. MOTIVATION
A well thought of budget, which encourages genuine
participation and involvement of operating management in the
preparation of the budget, and the establishment of agreed
performance levels has been found to have motivating effects.

29
The success of a budgeting system is more than not congruent
by the budget holders.
This is the behavioural aspect of budgeting and not technical
and the top management of the organization must realize this.
Therefore, managers may always be motivated to perform in
line with the organizations objectives particularly when they are
involved in setting the standards.
2.13 CLASSIFICATION OF AUTHORITY AND
RESPONSIBILITY
When there is a well-coordinated budget system and plans, the
resulting information of the performance of the plans is
expected in terms of human responsibility because it is human
beings that control operations and not report. Proper budgeting
system alolo9ws organization to be schemed down into budget
centers or responsibility and clear responsibilities of each
manager are set out. Subordinate are given clearly defined roles
and also authority for the achievement of the overall plan is
designed and assigned to him and variances are expected
immediately so that corrective actions can be taken to pout the
plans back on track. The aspect can be referred to as
management by exception.
A. COMMUNICATION
Communication is the process of transmitting thought or
information from one person to another. The full budgeting
process involves all levels of management and therefore, there
must be liaison and discussion among all levels of

30
management. It is a formal form of communication between the
top management level and middle level of management
regarding the organizations long-term objectives and the
practical problems of implementing these objectives.
Agreed master plans forms a formal means of communicating
between all categories of employees. It also provides for both
vertical and lateral communication between different functions
in the organization and this one power of a well-coordinated
budgeting system.
B. CONTROL
It is the process of comparing actual results with budgeted
results ad it is aspect of budgetary system that is most
frequently encouraged by the ordinary staff member. Control as
an aspect of budgetary sets control discipline, which helps to
achieve the plans within agreed expenditure limits. Deviations
are noted so that corrective actions can be taken.
C. PLANNING
This is a formal process of budgeting work within the
framework o long-term overall objectives to produce detailed
operational plans for different sections and facets of the
organization so that each facet of the operation contributes
towards the overall plan. Planning is majorly concerned with
the internal allocation of resources to achieve certain objectives.
D. PERFORMANCE EVALUATION
A manager’s performance is often budget partly by his ability to
meet budgets. When considering a manager for promotion of for

31
salary increase of for some others of recognition, a manager’s
budget record and his ability to meet the targets incorporated
in budgets are often an important factor. The knowledge of the
fact that a budget will be used to educate the performance of a
manager may cause a change in the manager’s attitudes to the
whole budgeting process.
2.13.1 HUMAN ASPECT OF BUDGETING
Budgeting is often being looked upon from the mechanistic
point of view. However, the human behaviour aspect ad factors
are more important than the accounting techniques. The
success of a budgetary system depends upon its acceptance by
the company member’s who are affected by the budgets.
Budgets place managers in the spot light and the natural
reaction to criticisms and control due to variances in the
budgeting system is resistance and self-defense, which in the
long run may not augur well for the overall objectives of the
firm.
According to Prof C.S Ola in his book “management Account”.
Theory of application on short-term operational planning the
following problems that could affect the human aspect of
budgeting were highlighted
A. BEHAVIOURAL PROBLEM
Since budgets affects the people working for the company rely
on them to turn plans of the management through budget into
actual activity. It is pertinent to note that behavioural problem
often represent a major obstacle for the successful operation of

32
a budget control system. Hence, the proposed budgetary system
must have the full support of the chairman, managing director
and the Board of Directors of the company and this must be
seen to be so and also fully accepted by all the members of the
organization.
B. FEEDBACK PROBLEM
If a budget is in existence for a period of 12 months, it is
possible that during this period events occur which could nit
have been foreseen and out of the control of the management.
In these situations, the predetermined budget may not now
accurately reflect what must have happened in any individual
control: thus invalidating the control information revealed from
comparison of budgeted and actual performance.
2.14 MANAGEMENT CONTROL SYSTEM (BUDGET BEING
THE TOOL FOR MANAGEMENT CONTROL)
One specific problem with the conventional planning process
according to Blumentritt is that strategic planning and
budgeting are often out of set with one another. In too many
cases, budgets for allocating and pending money have little
connection with business or operational strategies. Strategic
management and budgeting are distinct but intertwined
activities. When properly applied, both process improve an
organization’s ability to create and sustain superior
performance (Tim Blumentritt, 2006)

33
Tim Blumentritt (2006) further went to point out that
budgeting, strategies, and strategic management share an
orientation toward improving business performance, as each is
used to set an organization on an appropriate path to success
and guide its manager’s decisions and activities. Such
relationship between strategic management and budgeting does
not exist in many firms (Tim Blumentritt, 2006:74). The
problems in appropriately using the two processes may arise
when a firm does nit properly integrate them or does not
employ strategic management at all.
He further went on to say that there are many methods for
managing the strategic management and budgeting processes;
the right methods for many particular firm according to the
author depend on factors such as its industry, size, number of
divisions, product lines or business units, management
preferences, history and culture. Regardless of how these
processes are managed, they share a single goal; improving the
ability of both strategic management and budgeting to
contribute to business performance. The process begins with a
review of both the firm’s strategic position and its financial
condition. (Tim Blumentritt, 2006). The authors made
propositions of how organizations could integrate strategic
management and budgeting presented below.

34
2.14.1 TOOLS FOR INTEGRATING STRATEGIC
MANAGEMENT AND BUDGETING
According to Tim Blumentritt (2006), by integrating strategic
management and budgeting, these questions of “what should
we do” And “how do we pay for it?” might be tackled
simultaneously. In doing so, the two processes share their
strengths. The true goal of this process is rigorous agility. A
firm’s managers and employees must believe that good strategic
decisions are being made or they will be less dedicated to them
and their implementation. Strategies management and
budgeting, when used properly, become powerful tools for
communication of management’s commitments. These
processes must also enable a competition, global pressures,
and demanding customers characterized by strong budgetary,
insulated from change. While well-developed plans are the place
to start, they must be open to questioning and revisions to
ensure they stay relevant (Tim Blumentritt, 2006).
Organizations can adopt many different processes and tools to
develop rigorous agility in their planning activities. These
include the following.
1). Standing Strategic Review Committees
Developing great necessarily involves peering into the future. A
strategic review committee often consists of executives
representing diverse areas who meet to address challenges to
the firm’s strategic direction. Such committees supplement the
annual strategic planning process. By including executives

35
from throughout the firm, including those responsible for a
firm’s strategic management and budgeting processes,
ramifications arising from changes in one area of the firm for
others are more quickly identified (Tim Blumentritt, 2006: 78).
In an article written by Jeffrey C. Thompson (2007), the author
also noted that comprehensive communication to all
stakeholders, investors, customer/members, audit committee,
the board of directors and of course the employees which have
a stake in the success of their strategic plan is critical. He
further went on by making two suggestions- hold employee
meetings and celebrations to kick off the new planning cycle
and be honest and totally transparent with your employee
(Jeffrey C. Thompson, 2007).
2). Technology
The advanced processes for integrating planning and budgeting
share a need for communicating information and decisions.
Flexibility depends on getting good information to the people
who need it when they need it. The increased capability of IT
tools makes them increasingly important in business planning
(Tim Blumentritt, 2006).
James Creelman (1998) also recognizes the need for
organization to modify their budgeting and planning system
approaches and link them to strategy in order to successfully
implement new strategic management system driven by
balanced scorecard. He presented D. Norton and R. Kaplan’s
(1992) proposal of how to link budgeting and strategic

36
planning. The proposal stipulates that the budget should be
done at the same time as a company does it three or five year
plan, and not be a completely separate process. That is, the
budget should be year one of the strategic plan agenda.
J. Creelman (1998) presentation of D. Norton and R. Kaplan’s
(1992) four steps process of how to link budgeting and strategic
planning are presented below.
1). Set Stretch Targets
Managers are encouraged to set three to five breakthrough
performance targets due to the cause and effect features and
organizational focus on balance scorecard. The stretch targets
should dramatics.
2). Identifying the initiatives which help the achievement
of the stretch targets
By using the balance scorecard to identify, set priorities, and
align those capital investments and action programmes it is
possible to achieve the stretch targets.
3). Link resource allocation (capital and spending) on
strategic initiatives to that plan
That is, derive expense scorecard and discretionary spending
programmes for year one of the long-range plan as translated
by the balance scorecard. Capital investment should be viewed
through the lens of how it enables the achievement of one or
more strategic objectives.

37
4). Set the milestone for year one which can be interpreted
as the budget
This is done by establishing quarterly milestones for measures
in all balanced scorecard perspectives which could be use to
verify that the company is on the trajectory for reaching the
strategic breakthroughs in the year three.
B. Rapp et al. (2000) further the above view through the model
they design to explain the link between strategy and
management control (financial and non financial aspects). They
recognized the need for organization to adapt their management
control processes to the adopted choices. This is illustrated by
the figure below.

FIGURE 1 HYPOTHETICAL RELATIONSHIP BETWEEN

STRATEGIC PATTERN, MISSION, POSITION, DESIGN AND
THE USE OF MANAGEMENT CONTROL.
Adapted from B. Rapp et al. (2000)

Strategic Defender Prospector

Pattern

Strategic Hold
Harvest Build
Mission

Strategic
Position Cost leadership Differentiation Cost leadership Differentiation

Effect
Tight control Loose control Loose
Tight control

38
On MCS
The above figure is an illustration of Porter (1980), Miles and
Snow (1978) and, Gupta and Govendarajan (1984) conception
of determining the factors of organization’s strategic pattern,
strategic mission, strategic position and management control
system. From the figures it’s clear that the choice of strategic
position dictates the management control system that will be
adopted. The choice is between tight control with the use of
financial tools of planning for example budget (the case with
cost leadership strategy) and loose control relying essentially on
non financial means of control (this is the case with
differentiation strategy).
Simon (1987) presented an argument similar to that of B. Rapp
et al. (2000). According to him, high performing prospector
companies seem to attach a great budget goals and monitoring
outputs carefully. For prospectors, cost control is reduced. In
addition, large companies appear to emphasize frequent
reporting and the use of uniform control systems which are
modified when necessary. Defenders, particularly large
companies, appear to use their control systems less intensively.
They emphasize bonus remuneration based on the achievement
of budget targets and tend to have little change in their control
systems.

39
Below, we will present a discussion on better budgeting. As
discussed by C. Adams et al. (2003) better budget should be
strategy oriented.
2.15 BETTER BUDGETING
C. Adams et al. (2003) discussed that to be effective, budgets
must, firstly, be aligned with; the organization’s strategies,
appropriate strategic planning and performance management
processes introduced. Secondly, they must involve processes
that are value based, consequential and continuous, i.e. that
are focused on identifying and managing the drivers of
shareholder value; that makes explicit the link between these
value drivers; and that promote a continuous process of
questioning and challenging the assumption inherent in the
strategy. They identified five different classes of budgets that fit
these criteria; activity based budgeting, zero based budgeting,
value budgeting, profit planning and rolling budgets and
forecasts.
(1) Activity Based Budgeting
According to the C. Adams et al (2003) activity based budgeting
(ABB) is similar to activity based costing (ABC) and activity
based management (ABM). It actually involves planning and
controlling along the lines of value adding activities and
processes. Resource and capital allocation decisions are
consistent with ABM analysis, which involves structuring the
organization’s activities and business processes so that they
better meet costumers and external.

40
ABB can be adopted in all industries and functions, including
services industries and overhead functions. It is also used in
manufacturing. It is really a management process, operating at
the activity level, for continuous improvement on performance
and costs (Wilhelmi and Kleiner, 1995).
The key features of ABB include: a planning process linked to
the organization’s strategic objectives, a use of well-proven
activity analysis techniques-the heart of all activity based
systems, identification of cost improvement opportunities,
analysis of discretionary spending options and priority ranking.
Establishment of performance targets for control, integration
with activity planning and accounting to provide effective
control, a participative process to control and sustain
continuous improvement.
The benefits of ABC are that it: highlights the cost of activities,
pouts resource allocation in the context of rising/falling activity
levels, encourages new thinking: how can the activity be carried
out more effectively (process improvement)?, links to TQM
(Total Quality Management) programmes, as the activity cost
can be related to the services level achieved., facilities to
achieve, enables trend analysis and benchmarking of costs to
take place, can be used for day-to-day operational control.
(2) Zero Based Budgeting
C. Adams et al (2003) stated that under Zero Based Budgeting
(ZBB), expenditures must be re-justified during each budgeting

41
cycle rather than basing budgets on previous years or periods.
ZBB is not built on inefficiencies and inaccuracies of previous
history. The author also noted that the value of this approach
depends on the stability of operating environment.
(3) Value Based Budgeting
This a formal and systematic approach for managing the
creation of shareholders value over time. All expenditure plans
are evaluated as project appraisals and assessed in terms of the
shareholder value they will create. This helps to link strategy
and shareholder value to planning and budgeting.
(4) Profit Planning
It is about planning the future financial cash flows of profit
centers (profit wheel). It gives the possibility to assess whether
an organization or unit generates sufficient cash flows, creates
economic value and attracts sufficient financial resources for
investment. It also ensures consideration of an organization’s
short -and long-term prospects when preparing its financial
plans.
(5) Rolling Budgets and Forecast
It appears to have the mist potential as the better regular
budgeting approach. It enables firm improve their forecast
accuracy and overcome the traditional budgeting time lag
problem. This by: solving the problems associated with
infrequent budgeting, being more responsive to changing
circumstances, but requiring permanent resource to
administer, and overcoming problems linked to budgeting to a

42
fixed point in time - i.e. the year end and the often dubious
practices that such cut-offs encourage.
2.19 COMPETITIVE ADVANTAGES
we perceive competitive advantages as conditions (abundant
resources, access to a distribution channel, possibility of
acquiring strategic resources at very cheap costs, possession of
a unique asset, unique production pattern, strong brand
name.) that gives strength to a company in an industries vis-à-
vis other firms. To acquire this advantage is far from being
pleasant.
Philip Sadler (2003) noted that if a firm possesses resources
and capabilities and capabilities which are superior to those of
competitors, then as long as the firm adopts a strategy that
utilizes these resources and capabilities effectively, it should be
possible for it to establish a competitive advantage. But in term
of the ability derive which the firm can sustain its advantage.
The sustainability of competitive advantage demands that it
sources be expanded and improved (Porter, 1990).
Hearth and Indrani (2007) stated that in order to create a
competitive advantage, firm’s innovative products and services
which are capable of competing with those of competitors.
Innovation could consist of technological advancements and
better methods of performing activities (p. 81). Here. We realize
that in order for a firm to create a competitive advantage, its
resources should be used in the most appropriate manner to
achieve the organization’s mission.

43
Amoako-Gyampah and Acquaah (2008) furthered this thought
by stating that a firm can gain a competitive advantage over its
rivals either by having significantly lower cost structures in an
industry or creating a unique image in the minds of customers
that the firm or its products are superior to those of its
competitors. Thus, we distinguish two types of competitive
advantages of interests to us: cost leadership and
differentiation advantages.
The goal of cost advantage is to be the cost leader in the
industry where as that of differentiation advantage is of quality
leader (Philip Sadler, 2003).
We will hence discuss literatures that investigate how budget
being a tool of management control could facilitate the creating
of sustaining of competitive advantage.
2.19.1 BUDGETING AND COMPETITIVE ADVANTAGE
Budget as discussed earlier is a tool of management control
through which management could impact organizational
performance. Budgeting in this regard is viewed as enabling the
different functions of management control.
Herath and Indrani (2007) investigated how the budgetary
control system was used to create and sustain competitive
advantage in a Sri Lanka manufacturing company. Their claims
were based on the woks of Porter (1990) who stated that
sustaining competitive advantage demands that its sources be
expanded and improved, by moving up the hierarchy to a mere

44
sustainable form, and Jehle (1999) who noted and they (Herath
and Indrani, 2007) quoted.
The budget represents their number and their benchmarks
against which their performance is measured. It’s the
qualification of the company’s plan to realize competitive
advantage. Competitive advantage is all about understanding
what you need to achieve to differentiate yourself, gain market
share, or somehow leave your competitors in the dust.
Herath and Indrani (2007) during their case analysis identified
four functions through which budgetary control system
facilitates the creating and sustaining of competitive advantage
which will discus detail. We will have to borrow from different
authors work to effectuate the discussion. The function of
budgets includes: means of forecasting and planning, channel
of communication and co-ordination, motivational device,
means of evaluation and control, and source of information for
decision-making (Herath Indrani, 2007).
(1) A Means of Forecasting and Planning
Commentators highlighting the importance of the forecasting
role of the budget include Samuelson (1986), Imhoff (1986).
Imhoff found that companies often take up to four months to
complete the forecasting process and that sales forecasts are
revised an average of five times. Lyne (1998), in connection with
his empirical study that provided support for the view that
forecasting is the most important role of the budget, notes that
little has been written on the budget’s forecasting and planning

45
roles. C. Drury (2006) pointed out that the annual budgeting
process leaders to the refinement of the long-term plans. It
ensures that managers do plan for future operations and that
they consider how conditions in the next year change and what
steps they should take now to respond to these change
conditions. Thus, enabling managers o anticipate problems
before they arise and hasty decisions that are made without
premeditation based on expediency rather than reasoned
judgements are minimized.
(2) A Changed of Communication and Co-Ordination
Simons (1995) provides a frame work for thinking about how
management control systems can be used to communicate the
corporate mission. In his model, budgeting consists of two
primary components: a strategic level and an operational level.
The “levers of control” framework defines four types of
management controls: belief systems, boundary systems,
diagnosis systems, and interactive systems. Belief systems are
programs and statement that on acceptable employee conduct.
Diagnostic systems providing lagging indicators of performance.
Interactive controls proactively capture critical measures from
the business environment and are used to guide corporate
strategy. Budgeting can be used to enable each of the levers
control.

46
FIGURE 2: APPLYING LEVELS OF CONTROL O THE
BUDGETING PROCESS

Executive Management
(Strategic Level)

Boundary & Diagnostic

Belief Systems System
Interactive System

Front Line Management

(Operational Level)

Adapted from Simon (1995)

Basky and Bremser (1999) in their analysis of Simon’s model

realized that management imparts belief and boundaries to
front line managers. And that management intending to better
align employee actions with strategic goals should use budget
to emphasize core beliefs and critical interactions. These move
the budgeting process beyond financial targets to include non-
financial measures. The authors belief these systems and
initiatives articulate the primary mission of the organization,
the limits on employee about the strategic direction of the
dialogue between executive and front line management about

47
the strategic direction of the company. Front-line managers use
diagnostic systems to provide feedback on ongoing operational
activities.
(3) A Motivational Device
Research evidence has shown that the use of specific, difficult
targets can lead to higher performance levels than moderate or
easy targets (Chow, 1983; Hofstede, 1968; Stedry and Kay,
1966). These studies have shown, however, that as soon as a
budget becomes so tight that it is perceived to be unattainable,
its motivational impact is reduced, and eventually subordinate
give up trying to meet it, often performing at a lower level than
of a less difficult targets has been used. The evidence therefore
suggests that budgets will provide the highest positive
motivation when they are set the moist difficult level that is
seen as achievable by subordinates. Achieving maximum
motivational benefits from budgetary targets is therefore
contingent on the use of tight, yet attainable, budgets. This is
complicated by the fact that this level is likely to vary between
individuals and may be affected by other factors. A further
complication is that to motivate maximum performance, the
budget needs o be set as a target level, thus giving rise to an
anticipated adverse variance (Hofstede, 1968).
This leads to a conflict between the planning function of
budgets and the control function. Simons (1988) found budget
tightness to positively associate with the use of monitoring and
reporting controls and formula-based remuneration.

48
Two-Way Interaction
According to Lau a high Emphasis on tight budget targets is
likely to be effective only when it is accompanied by a high
extent of cost control. Consequently, emphasis on tight budget
target is likely to interact with cost control to affect
subordinate’s propensity to create slack and budgetary
performance. When emphasis is on tight budget target and cost
controls are both high, it is likely that the superior of highly
committed to using the accounting control system to achieve
organizational objectives. Furthermore, the intensity and the
sophistication of the accounting control in place are likely to
make it difficult for subordinates to create slack.
Moreover, because of the increased attention on meeting tight
budget targets, subordinates’ budgetary performance is also
likely to be high. Control here are refers to actions taken to
achieve plans and involves the measurement of progress when
plans are implemented and the triggering of actions to correct
or prevent any deviations of actual performance from the
budgets.
According to C. Drury (2006) increasing individual’s active
participation in budget preparation and using budget as a tool
to assist managers in managing their department can be a
strong motivational device by providing a challenge.
(4) A Means of Evaluation and Control
From the perspective according to Brian et al (1995), activity
based budgeting can be used in manufacturing. It is really a

49
management process, operating at the activity level for
continuous improvement on performance and costs (p.42). It
therefore provides the foundation for a more effective control.
Nicolaj Ejler et al. (2008) in their article considered some of the
intersections in the policy cycle where evaluation may be
useful. According to the United Nations Development Agency,
performance management (in which performance measurement
is a constituent part) as a managerial model has four
distinguish features:
i. The definition model has four distinguishing features.
ii. The specification of strategic goals which provide a focus
for action; goals and align programmes, process, and
resources behind them;
iii. Ongoing monitoring and assessment of performance,
integrating lesson learnt into future planning;
iv. Improved accountability based on continuous feedback
to improve performance, UNDPO, (2001:2).
The need for ongoing feedback and management control
requires companies to measure and evaluate business unit
performance at least once a year (Anthony and Govindarajan
2004). The process of evaluation is a comparison of actual
expenses and those that should have been incurred under
circumstances. If the circumstances assumed in the budget
process are unchanged, the comparison is between budgeted
and actual amounts. If circumstances have changed, these
changes are taken into account. Ultimately, the analysis leads

50
to praise or constructive criticism of the responsibility center
managers (Anthony and Govindarajan, 2004).
However, relying on financial measures alone is insufficient to
ensure strategy will be executed successfully. The solution to
this according to Anthony and Govindarajan (2004), is to
measure and evaluate business unit managers using multiple
measures, non financial as well as financial. They refer to non
financial measures the support strategy implementation as key
success factors or key performance indicators (p.4950.
companies used financial and non financial measures in the
past. However, they tended to use non financial measures at
lower levels in the organization for task control (Anthony and
Govindarajan, 2004). According to the authors, it is important
for senior executive to track not only financial measures, which
indicate the result of past performance. Similarly, employees at
lower levels need to understand the financial impact of their
operating decisions (Anthony and Govindarajan, 2004).
(5) A Source of Information for Decision-Making
According to Brian H. et al (1995), the essence of the ZZB is
decision making. Zero-based budgeting arose from a need to
more closely link intended results with the use of resources. It
grew out the deficiencies found in traditional budgeting system
(p.10). “The budget process forces us to look at what the
organization is going to be in terms of its results from the
resources to be used”.

51
2.20 HIGH PERFORMANCE
We can define performance as the outcome of a firm’s activities
over a given period. Thus, a firm could experience a poor as
well as a good performance.
The determinant or measure of performance varies across
industries and companies. It is hard to indicate what the best
measure of performance is as this could mean: measuring
customers’ satisfaction, measuring employees and /or
shareholders satisfaction, measuring sales growth, measuring
market share, measuring the return on capital invested. For the
sake of our study, we will base our classification on that of
Amoako-Gyampah Acquaah (2008).
Amoako-Gyampah Acquaah (2008) classifies performance
under two dimensions: market share and sales growth is the
increase in sales in money value. High performance will mean
high market.
They further went on to say that a strategy that allows a firm to
achieve either: high design and conformance quality or
improvements in production efficiencies will lead to either; a
higher reputation in the market place, cost reduction, and
higher productivity or low-pricing possibility which could be
translated into higher sales growth and increased market
share.
Also, a firm that develops a strategy that allows it to achieve
volume and mix flexibility while keeping costs low and quality

52
high will be able to respond faster to market changes and thus
achieve higher performance.
2.21 LIMITATIONS OF BUDGETING
i. A skillfully prepared budgeting programmed will not itself
improve the management of an enterprise unless it is properly
implemented.
ii. The installation of a perfect budgeting system is not possible
in a short-term period because business conditions change
rapidly: therefore, budgeting programme should be continually
adopted.
iii. Budgeting is not an exact science: Its success lies upon the
precision of estimates, which are based on facts and managerial
judgment, which can suffer from subjective and personal bias.
The adequacy of budgeting thus depends on the adequacy of
managerial judgments.
Iv. Budgeting will lower morale and productivity if unrealistic
targets and it is used as a pressures device, but its extents
must be carefully determined.
2.22 SUMMARY
The budgetary process is an important method of
communication and control of any organization so as to achieve
its vision, mission, goals and objective. Budgeting ensures that
there is better communication and actions. The interjection of
budgets ensures that there is possibly better cash and working
capital management. The regular systematic monitoring and
report of activities (budgetary control) facilities the control of

53
current activities provided is proper participation, goal
congruence is encouraged and motivation increased.

54
 CHAPTER THREE
RESEARCH METHODOLOGY

3.0 INTRODUCTION
This chapter deals with the research method used in carrying
out this research work. It covers the re-statement of the
research questions and hypothesis the reaserch design
adopted, the population dealt with and sample size. It also
covers data collection instrument, the questionnaire design and
assumptions and administration of questionnaire. The
limitation encountered is also included.
3.1 RE-STATEMENT OF THE RESEARCH QUESTIONS
In order to make this research work comprehensive, the
research questions stated in chapter one have to be re-stated to
serve as a guide. They are:
i. How was the budget developed?
ii. To what extent the Femstar Company Limited finance
sources of revenue attained?
iii. To what extent the budget problem marred the
performance of budget in private organization in Nigeria?
iv. What are the roles of finance department in Femstar
Company Limited?
v. To what extent the budget can influence the design of the
budget objectives in the budget-planning phase?
3.2 RE-STATEMENT OF RESEARCH HYPOTHESIS
The following hypothesis will be tested provided answers to the
above questions:

55
HYPOTHESIS I
Ho: Budgeting and budgetary control does not require the
support of top management.
H1 : Budgeting and budgetary control requires the support of
top management
HYPOTHESIS II
Ho: Budgeting and budgetary control is not an effective
means of measuring an organization’s performance.
HI : Budgeting and budgetary control is an effective means of
measuring an organization’s performance.
HYPOTHESIS III
Ho: Budgeting and budgetary has not brought accountability
on the part of management.
Hl . Budgeting and budgetary has brought accountability on
the part of management.
3.3 RESEARCH DESIGN
Research design is the structuring of investigation aimed at
identifying variable and their relationship to one another. The
research method adopted for this research project is basically
descriptive. Most of the research work was alone in the library.
However, the researcher at the Femstar Company Limited
premises by means of questionnaires and interviews will
conduct the field study.
The questionnaire will comprises of questions, fact of the
questionnaire will be divided into two sections: section A and
section B. Section ‘A’ which contains questions designed to

56
collect personal data about the respondent, section ‘B’ designed
to collect data relating to the budgeting as a tool of
management planning and control in an organization.
3.4 POPULATION AND SAMPLING SIZE
The population of this research work is made up of 210
management and staff of Femstar Company Limited. The
probability sampling methods will be used in this study which
systematic sampling. This method is chosen because it gives
equal and independent chance of being included in the sample
size of the entire population size.
3.5 DATA COLLECTION INSTRUMENT
In data collection, both primary and secondary sources of data
were used in carrying out this research.
The primary source of data that will be used is the
questionnaire that will be administered to the management and
staff of Femstar Company Nigeria limited. In addition, the
researcher had personal interview with various persons who are
not member of Femstar Company.
Secondary source of data used includes textbooks, documented
records relevant to the study, example the annual report of
Femstar Company Limited and the past budget statement of
the company.
3.6 TEST OF VALIDITY AND RELIABILITY OF THE
INSTRUMENT
The reliability and validity procedure used in this research
essentially relied on the works of Church II (1979), Schwab

57
(1980), Kim and Muller (1978). The measurement scale and the
associated statistic techniques used in this research benefit
from the works of Littman and Hulbert (1972), Lizzstz and
Greene (1975), Kinnear and Taylor (1983) among others.
3.7 ADMINISTRATION OF DATA COLLECTION INSTRUMENT
The crux of this research work is on the development of
business organization using problem of finance in Nigeria,
hence data collection was concentrated on Femstar Company
Limited. Emphases were placed on sincerity and objectives on
the answers of respondents for results and findings to reflect
the reality on ground.
3.8 PROCEDURES FOR ANALYZING DATA
All the data analysis process was done by using table analysis
and method of data analysis was executed though chi-square
parameter statistics.

58
 CHAPTER FOUR
PRESENTATION OF DATA AND INTERPRETATION OF
RESULTS

4.0 INTRODUCTION
This chapter attempts to answer the research questions
highlighted in chapter one of the study. It is based on
budgeting and budgetary control practice in Femstar Company
Limited with the aid of personal interview conducted.
One hundred and fifty copies of questionnaires were
distributed among the management and staffs, Nineteen-items
questionnaire was designed to collect primary data on the
listed research questions.
Out of the one hundred and fifty (150) sets of questionnaire
sent out among the groups described earlier, only one
hundred and thirty six sets (136) of the questionnaire were
returned. Those were fully completed and were usable for
analysis in this study.
4.1 RESEARCH QUESTIONS
Table 4.1.1: Respondents Sex distribution
Sex Frequency Percentage (%)
Male 95 69.85
Female 41 30.15
Total 136 100
Source: Field survey, 2011

59
Table 4.1.1 above shows that 69.85% of the respondent is
male while 30.15% of the respondents are female. In
conclusion, majority of the respondents are males.
Table 4.1.2: Respondents Age distribution
Age Frequency Percentage (%)
18 – 25 6 4.41
26 – 35 66 48.53
36 – 45 60 44.12
46 and above 4 2.94
Total 136 100
Source: Field survey, 2011
Table 4.1.2 shows that the respondent are of different age
bracket, respondent between the ages of 26 – 35 are 48.53%,
while 44.12% are between 36-45 years, 4.41% are for ages
between 16 – 25 years, and 2.94% for 46 years and above.
This shows that the majority of respondents are between 26 –
45 years of age distribution.
Table 4.1.3: Respondents Rank
Rank Frequency Percentage (%)
Manager 4 2.94
Head of Department 30 22.06
Supervisor - -
Junior staff 102 75
Total 136 100
Source: Field survey, 2011

Table 4.1.3 above shows that 2.94% of the respondents are

managers, 22.06% are head of departments, while 75% are
junior workers. In conclusion, majority of the respondents are
junior staffs.

60
4.1.4: Academic qualification
Qualification Frequency Percentage (%)
WASC,SSCE,NCE - -
B.Sc/HND 60 44.12
M.Sc, MBA 40 33
ACA, ACIS 36 22.06
Total 136 100
Source: Field survey, 2011
This table 4.1.4 shows that the company has fair spread of
employees across the various cadres. It however, has the
strongest percentage in graduate employees constituting
44.12% of the workforce while 33.82% of the workers are
holders of Master degree and 22.06% are holders of
professional certificate.
Table 4.1.5: Years in service
Years Frequency Percentage (%)
1–5 22 16.17
6 – 10 53 38.97
11 – 15 47 34.56
16 and above 14 10.29
Total 136 100
Source: Field survey, 2011
The table shows that 16.17% of the respondents are 1 - 5
years in service, 38.97% are 6 – 10 years in service, 34.56%
are 11 – 15 years while 10.29% are 16 years and above.
In conclusion, majority of the respondents in the bank are
between 6 – 15 years in service.

RESEARCH QUESTIONNAIRE

61
QUE 1: Is budgeting is and budgetary control well practiced in
Femstar Nigeria Limited.
Respondents Frequency Percentage (%)
Yes 118 86.76
No 18 13.24
Total 136 100
Source: Field survey, 2011
The table 4.6 above shows that 86.76% of the respondents
admitted that budgeting and budgetary control is well
practiced in Femstar Company Limited, while 13.24% of the
respondents said that budgeting and budgetary control is not
well practiced in the real sense of it.
In conclusion, since 86.76% said yes, we then believe that
budgeting and budgetary control is well practiced in Femstar
QUE 2: Is budget planned actualized
Respondents Frequency Percentage (%)
Yes 74 54.41
No 62 45.59
Total 136 100
Source: Field survey, 2011
Table 4.7 above shows that 54.41% of respondents agreed that
the planned budgets are actualized while 45.59% disagree.
QUE 3: Do you think that the adoption of yearly budget for deposits, loans and
revenue can be regard to effective and efficient towards realizing the organizational goal.
Respondents Frequency Percentage (%)
Monthly - -
Quarterly - -
Half yearly - -
Yearly 20 14.71
All of the above 116 85.29
Total 136 100

62
Source: Field survey, 2011
In table 4.8 above, 14.71% of the respondents said, the budget
period of FEMSTAR is yearly, while 85.29% of the respondents
said that FEMSTAR operates monthly, quarterly, half yearly
and yearly budget period. The researcher then inferred that
FEMSTAR operates all of the above.
QUE 4: What level of staff is responsible for the preparation of budgets?
Respondent Frequency Percentage (%)
Top Management - -
Middle level management 24 17.64
Both 112 82.35
Total 136 100
Source: Field survey, 2011
In table 4.9 above 17.64% of the respondents said that middle
level management are responsible for the preparation of
budgets, while 82.35% of the respondents said that both Top
and Middle level management are responsible for the
preparation of the company’s budget. So all levels of
management should be involved in budget preparation.
QUE 5: Why should managers/employees participate in the
preparation of budget instead of imposing budget on
managers?
Respondents Frequency Percentage (%)
Remove tension, pressure - -
Remove conflict and aggression - -
Receive managers acceptance - -
All of the above 136 100
Total 136 100
Source: Field survey, 2011

63
Table 4.10 shows that, the respondents were of the opinion
that managers and employees should participate in the
preparation of budgets in order to eliminate most of the
problems that are associated with imposed budget, imposition
of budget by management.
QUE 6: Does effective budgetary system in your organization
facilitate cost control
Respondents Frequency Percentage (%)
Yes 90 66.18
No 46 33.82
Total 136 100
Source: Field survey, 2011
From table 4.11 above, 66.18% of the respondents are in
agreement that effective budgeting system facilitate are cost
control. While 33.82% of the respondents said no to the
question. Considering the percentage of those that said yes to
the question, the researcher then believed that effective
budgetary system facilitate cost control.
QUE 7: Is budgeting and budgetary control an effective means of measuring an
organization’s performance?
Respondents Frequency Percentage (%)
Yes 93 68.38
No 43 31.62
Total 136 100
Source: Field survey, 2011
From table 4.12 above, 68.38% of the respondents are of the
opinion that budgeting and budgetary control is an effective
means of measuring organization performance. While 31.62%
disagree with them, some respondent interviewed by the

64
researcher said that some target are highly unrealistic, and
cannot be achieved considering the circumstances and
resources surrounding the employee. And so cannot be a good
measurement for the organization’s performance. From the
percentage of those who said yes, the researcher concluded
that budgeting and budgetary control is an effective means of
measuring organization’s performance.
QUE 8: Do you think that corporate goals affects or conflict with the branch goals.
Respondents Frequency Percentage (%)
Yes - -
No 136 100
Total 136 100
Source: Field survey, 2011
Table 4.13 above shows 100% of the respondents said that
corporate goals do not conflict with the branch goals. The
research then believed without doubts that branch goals and
corporate goals work or moves in the same direction.
QUE 9: Do you support a professionally qualified Accountant
or B.Sc degree in Accountancy being appointed to be the branch accountant.
Respondents Frequency Percentage (%)
Yes 95 69.85
No 41 30.15
Total 136 100
Source: Field survey, 2011
The Table 4.14 above shows that 69.85% of the respondent
supported this by saying yes while 30.15% was of contrary
opinion. The result therefore suggest that a more qualified
accountant should be appointed which will open the gate of
more profitability, brought about by an understanding of

65
marginal costing technique as a basis of managerial decision
making process.
QUE 10: Is manpower budgeting in existence in FEMSTAR .
Respondent Frequency Percentage (%)
Yes 122 89.71
No 14 10.29
Total 136 100
Source: Field survey, 2011
Table 4.15 above shows that 89.71% of respondents agreed
that there is manpower budgeting in FEMSTAR. While 10.29%
of the respondents said no to the question. From few people
interviewed by the researcher, the researcher was made to
understand that, there are time sets of people the bank
employs presently, they are the experience hires (people from
other banks) and the executive hires (fresh graduates).
In conclusion, there is manpower budgeting in FEMSTAR.
QUE 11: Does unwillingness to consider new ideas the old
managers affect the effectiveness and control of budget?

Respondents Frequency Percentage (%)

Yes 74 54.41
No 62 45.59
Total 136 100
Source: Field survey, 2011

In table 4.16, 54.41% of the respondents said yes that the

unwillingness of the old managers to consider new ideas affect
the effectiveness and control budget, while 45.59% operations?
QUE 12: In exercising control how does your company control its operation.

66
 Respondents Frequency Percentage (%)
Monthly 14 10.29
Yearly 7 5.15
Both 115 84.56
Total 136 100
Source: Field survey, 2011
In table 4.17 above, 10.29% of the respondents said the
company exercise control on monthly basis. But 5:15% of the
respondents said that it is yearly while 84.56% said that
FEMSTAR operates both monthly and yearly control.
QUE 13: Has budgeting and budgeting control brought
accountability on the part of management.

Respondents Frequency Percentage (%)

Yes 98 72.06
No 38 27.94
Total 136 100
Source: Field survey, 2011
The table in 4.18 above shows that 29.94% of respondents
said that budgeting and budgeting has not brought
accountability on the part of management. While 72.06% said
it has bought accountability from interview carried out by the
researcher, each business development officers (BDO)
organizes monthly performance report (popularly called MPR)
where every branch manager and the head of retail marketing
would be in attendance, to give account of the performance of
the branch for the month based on the branch’s target figure.
The meeting is chaired by the Business development manager
(BCD) of each area.
QUE 13: Budgeting and budgetary control require top management support.

67
 Respondents Frequency Percentage (%)
Yes 92 67.65
No 44 32.35
Total 136 100
Source: Field survey, 2011
The table 4.19 above shows that 67.65% of respondent said
that budgeting and budgetary control requires top
management support while 32.35% said No to the question
The researcher concluded that budgeting and budgetary
control requires top management support.
QUE 14: Does your Organization set Budget?
Respondents Frequency Percentage (%)
Yes 128 94.1
No 08 5.9
Total 136 100
Source: Field survey, 2011

The table 4.20 above shows that 94.1 % of the respondents

admitted that the organization set budgets while 5.9% of the
respondents do not agree.
QUE 15: If yes, which budget control method do you use
Respondents Frequency Percentage (%)
Previous years plus 48 35.3
inflation method
Incremental 59 43.4
budgeting method
Zero based 27 19.9
budgeting method
Other i.e. rolling 2 1.4
index

68
Total 136 100
Source: Field survey, 2011
Table 4.21 above shows that 35.3% respondents admitted that
the organization use previous years plus inflation method
43.4% respondents said the organization use incremental
budgeting method, 19.9% respondents agreed they use zero
based budgeting method while only 4.4% respondents admit
that the organization use rolling method.
QUE 16: Which policy does the organization follow if cost
activities submitted by any manager are perceived to be
excessive?
Respondents Frequency Percentage (%)
Negotiation - -
Upper management 106 78.0
Discretion 19 14.0
Undecided 11 8.0
Total 136 100
Source: Field survey, 2011
Table 4.22 above shows that 78% of the respondents indicated
that reduction was achieved through upper management
discretion, while 14% claimed that budgets are reduced
through negotiation. However, 8% did respond to the question.
QUE 17: who do you evaluate the performance of a manager?
Respondents Frequency Percentage (%)
Success in meeting 78 57
budgets
Performance 12 9
relating to others
within organization

69
Performance 12 9
relative to
competitors in the
organization
Ability to control 8 6
cots
Financial 26 19
performance
Dismal - -
performance
Total 136 100
Source: Field survey, 2011
Table 4.23 above show that 57% of the respondents admitted
that performance of managers are often measure by success in
meeting budgets, 9% respondent each said competitors within
the organization, 6% agreed on ability to control cots and 19%
on financial performance. However, none of the respondents
said dismal performance.
4.2 TESTING OF HYPOTHESIS
The hypothesis, which was initially stated in chapter 1, was
analyzed and tested using the statistical Chi-square method.
They were tested at 5% (0.05) level of significance.

In applying the chi-square method, if the calculated value of

chi-square is greater than or equal to its corresponding table
value at a given level of significance (0.05), we reject the null
hypothesis (Ho) and conclude by accepting the alternative
hypothesis (H1)
HYPOTHESIS ONE

70
Ho: Budgeting and budgeting control does not require the
support of top management
H1: Budgeting and budgetary control requires the support of
top management.
Testing at 5% (0.05) level of significance
Degree of freedom (df) = (Row – 1) (Column – 1)
= (2 – 1) (2 – 1) = 1
= X2 0.05 = 3.84
Therefore the critical value is 3.84. If the calculated value of X 2
is below 3.84, then we accept the null hypothesis (Ho), but if
otherwise we reject it.
Table 4.2.1
Respondents Male Female Total %
Budgeting & Budgetary 58 34 92 67.65
control requires top (64.26) (17.71)
management support
Budgeting & Budgetary 37 7 44 32.35
control (30.74) (13.26)
does not require top
management support
Total 95 41 136 100

This question was answered in table 4.1.19. The figures in

table 4.2.3 above shows the response as to budget and
budgetary control required top management support.
The figures in bracket are the expected frequencies while the
open figures are the observed frequencies.

71
CALCULATION OF EXPECTED FREQUENCY VALUE
E11 = 95 x 92 E21 = 95 x 44
136 = 64.26 136 = 30.74

E12 = 41 x 92 E22 = 41 x 95
136 = 17.74 136 = 28.64

CALCULATION OF X2
The formula below is applied to get the value
X2 = ∑ (Oij – Eij)2
Eij
Where,
Oij = observed value
Eij = Expected
X2 = Calculated
∑ = Summation
The chi-square table is then computed as follows
Table 4.2.2
O E O–E (O –E)2 (O– E)2/E
58 64.26 - 6.26 39.1876 0.61
37 30.74 6.26 39.1876 1.27
27 27.71 6.26 39.5641 1.43
7 13.26 - 6.26 39.1876 2.96
X2 = 6.27

72
 X2 = 0.61 + 1.27 + 1.43 + 2.96 = 6.27
The above calculation shows that x2 = 6.27 since this figure is
greater than the critical value of x2, which is 3.84, then the
null hypothesis (Ho) is rejected and the alternative hypothesis
(Hl) accepted. To support the result stated above, a simple
percentage analysis indicated that 67.65% of respondents are
in agreement that budgeting and budgetary control require top
management support, while 32.35% disagreed.

HYPOTHESIS TWO
Ho: Budgeting and budgetary control is not an effective
means of measuring an organization’s performance.
Hl: Budgeting and budgetary control is an effective means of
measuring an organization performance.

TABLE 4.2.3
Respondents Male Female Total %
Budgeting & Budgetary is an 55 38 73 68.38
effective means of measuring
an organization’s performance (64.96) (28.04)
Budgeting & Budgetary 40 3 43 31.62
control is not an effective
means of measuring an (30.04) (12.96)
organization’s performance.
Total 95 41 136 100

73
The figures in table 4.2.6 show the responses on budgeting
and budgetary control as an effective means of measuring
organization performance.
The figures in bracket are the expected frequencies while the
open figures are the observed frequencies.
CALCULATION OF EXPECTED FREQUENCY VALUE
E11 = 95 x 93 E21 = 95 x 43
136 = 64.96 136 = 30.04

E12 = 41 x 93 E22 = 41 x 43
136 = 28.04 136 = 12.96

X2 CALCULATION OF X2
X2 = (Oi – Ei)2
Ei
Testing at 5% (0.05) significance level, Degree of freedom (df) =
(Row – 1) (Column – 1) = (2-1) (2 – 1) = 1
X2 0.05 = 3.84
The critical value is 3.84. if the calculated value of x 2  3.84,
then we accept the null hypothesis (Ho), but if otherwise we
reject it.

Table 4.2.4 EXPECTED VALUE TABLE

O E O–E (O –E)2 (O – E)2

E
55 64.96 - 9.96 99.2016 1.53
38 28.04 9.96 99.2016 3.54

74
40 30.04 9.96 99.2016 3.30
3 12.96 - 9.96 99.2016 7.65
X2 = 16.02
X2 = 1.53 + 3.54 + 3.30 + 7.65 = 16.02

HYPOTHESIS THREE
Ho: Budgeting and budgetary control has not brought
accountability on the part of management.
Hl: Budgeting and budgetary control has brought
accountability on the part of management.

Testing at 5% (0.05) level of significance. Degree of freedom (df)

= (Row-1) (Column – 1) = (2 – 1) (2 – 1) = 1
X2 0.05 = 3.84
Therefore critical value is 3.84, if the calculated value of x2 is
equal or below 3.84, then we accept the null hypothesis (Ho),
but if otherwise we reject it.

Table 4.2.5
Respondents Male Female Total %
Budgeting & Budgetary brought 60 38 98 72.06
accountability on the part of
management
(68.46) (29.54)
Budgeting & Budgetary control 35 3 38 27.94
have not brought accountability on
the part of management.
(26.54) (11.46)
Total 95 41 136 100

75
In table 4.2.9 above show the analysis of the respondents to
the question whether budgeting and budgetary control
brought accountability on the part of management. The figures
in bracket are the expected frequency while the open figures
are the observed frequencies.

CALCULATION OF EXPECTED FREQUENCY VALUE

E11 = 95 x 98 E21 = 95 x 95
136 = 68.46 136 = 30.04

E12 = 98 x 41 E22 = 38 x 41
136 = 29.54 136 = 11.46

CALCULATION OF X2
The formula below is applied to get the value
X2 =∑ (Oij – Eij)2
Eij
Where,
Oij = Observed frequency
Eij = Expected frequency
X2 = Calculated
∑ = Summation

76
4.2.5 EXPECTED TABLE
O E O–E (O –E)2 (O – E)2
E
60 68.46 -8.46 71.5716 1.05
38 39.54 8.46 71.5716 2.52
35 26.54 8.46 71.5716 2.70
3 11.46 - 8.46 71.5716 6.25
X2 = 12.42

X2 = 1.05 + 2.52 + 2.70 + 6.25 = 12.42

The calculation above clearly shows that x 2 = 12.42 since the
figure is greater than the critical value of x2, which is 3.84,
then the null hypothesis (Ho), is rejected and the alternative
hypothesis (Hl) accepted.

4.3 INTERPRETATION OF RESULTS

Table 4.2.3 revealed that out of 136 respondents 92 or 67.65%
are in agreement that budgeting and budgetary control
requires the support of top management, while 44 or 32.35%
disagreed.
Similarly the figures in 4.26 shows that out of 136
respondents 93 or 68.38% are in agreement that budgeting
and budgetary control is a effective means of measuring
organization’s performance, while 43 or 31.62% disagreed.

Finally in table 4.2.9 out of 136 respondents 98 or 72.06%

agreed that budgeting and budgetary control brought

77
accountability on the part of management, while 38 or 27.94%
disagreed.
4.4 DISCUSSION OF RESULTS AND FINDINGS
It has found in this study that a significant correlation exists
between budgeting and budgetary control and organizational
performance. A large population of the workforce of Femstar
Company Limited believed the budgeting and budgetary
control is being carried out within the organization. At the
management level and the supervisory level but except for
some few respondents of the lower level staff, who are not fully
informed about financial planning in the organization.
However from concluding that there is an equal split on their
views concerning the subject.
The first finding agreed with the objectives of the study that
budgeting and budgetary control requires the support of top
management. This view aligned with Blumentritt (2006)
explanation that strategic management and budgeting are
intertwined activities. When properly applied, with process
improved an organization ability to create and sustain
superior performance.

Secondly, it was also found that budgeting and budgetary has

brought accountability on the part of management. This
confirmed with the views of Pandey (2002) that budgeting
ensure availability of sufficient fund, plan control expenditure
for the efficient operations of the organization.

78
CONCLUSION
Femstar Company Limited is a decentralized firm and top
management gives their support for budgeting while managers
are accountable and this has enhanced the performance of the
company in the manufacturing industry.

79
 CHAPTER FIVE
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.1 INTRODUCTION
This chapter would attempt to summarize all the findings of
the researcher on the research topic, and draw conclusion
based on these findings and then make some
recommendations. Although the research was conducted on
only one manufacturing company that is FEMSTAR and the
recommendations in this study can also be applied to any
organization in the industrial sector.
5.2 SUMMARY
The researcher was able to find out that budgetary system in
an organization at looking and planning ahead, give early
warning of impending problems and assist the control of cost.
It is the budget prepared that the organization will follow in
carrying out its operations with little addition or subtractions
as the occasion demands.
The top management gives their support for the budgeting and
budgetary control system and this encouraged al the
departments work together to achieve the corporate objective
of the organization.
The budgetary system in place in the company has made
accountability on the part of management possible and this
was made possible through the chain of authority and span of
control. This has also enhanced the performance of the

80
company, and this is why Femstar Company Limited, remains
one of Africa’s most diversified beverage food solutions
provider.
5.3 CONCLUSION
In line with the Femstar’s vision “To be clear leader and
Nigeria’s company of choice” It’s mission “To remain true to
name by providing the quantitative product possible” This has
helped the bank to transform itself as it forges ahead, and
maintaining leadership in a consolidated and more dynamic
industry.
The budgetary system in place in FEMSTAR has made it easier
for the organization to organize itself such that it leads rather
than follows others. The result of this study shows that
budgeting and budgetary control received the support of
chairman and board of directors of the organization as well as
other member of the organization.
Secondly, managers now it as a tool which helps to bring
accountability on the part of managers with the aim of helping
them run their own branches, and not a stick with which they
can be beaten whenever actual performance falls short of
budgeted performance.
5.4 RECOMMENDATIONS
Based on the findings of the researcher, the following
recommendations are being made to improve the budgetary
system in FEMSTAR as well as the whole manufacturing
industry.

81
 i. Staff of the organization should be given proper
orientation and education on the subject of budgeting
ii. Targets should be set with active participation of staff in
order to improve staff morale and communication
iii. There should be job description, which helps to minimize
conflict.
iv. The manager of the company must be seen to be
committed to the whole budget process and enforce strict
compliance
v. The system must be transparent and made credible
vi. Budgeting must be linked to staff performance and
reward or sanctions applied as necessary
vii. There should be the involvement of top management
personnel
viii. There should be clear-cut definition of corporate
objectives, and appropriate accounting and information
system, which can help companies in the private sector
to have effective budgetary system.
ix. There is need for management to constantly scan the
environment for opportunities and threats especially
government policies.
x. There should be effective management of human factors.
FEMSTAR vast human resources remains managed. The
company should endeavour to harmonize the goals of the
company with that of the staff.

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 BIBLIOGRAPHY
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RESEARCH QUESTIONNAIRE
SECTION A
Please, tick personal data as appropriate
1. Sex: (a) Male (b) Female
2. Age range: 16 - 25 years
26 – 35 years
36 – 45 years
45 years and above
3. Rank:
(a) ) Manager (b) Head of Dept
(c) Supervisor d) Junior Staffs

4. Academic qualification: (a) OND/NCE ACA

(b)B.Sc (c) M.Sc, MBA

5. Working Experience in the firm

(a) 1 – 5 years
(b) 6 – 10 years
(c) 11 – 15 years
(d) 16 and above
Choose the one that is Appropriate
6. Is budgeting and budgetary control well practised in
Femstar?
(a) No (b) Yes
7. Is budget planned actualized?

86
 Yes No
8. Do you think that the adoption of yearly budget for
deposits, loans and revenue can be regarded to effective
and efficient towards realizing the organizational goal
(a) Yes (b) No.
9. Is all levels of management responsible for the
preparation of budgets?
Yes No

10. Does managers/employees participation in the

preparation of budgets remove tension, pressure, conflict
and aggression?
(a) Yes (b) No
11. Does effective budgeting and budgetary control in your
organization facilitate cost control?
(a) Yes (b) No.
12. Is budgeting and budgetary control an effective means of
measuring an organization’s performance
(a) Yes (b) No
13. Do you think those corporate goals affect or conflicts with
the branch goals?
(a) Yes (b) No
14. Do you support a professionally qualified accountant or a
B.Sc degree in Accountancy being appointed to be the
Branch Accountant?
(a) Yes (b) No

87
15. Is manpower budgeting in existence in Femstar?
(a) Yes (b) No
16. Does unwillingness to consider new ideas by the old
managers affect the effectiveness and control of budgets?
Yes No
17 Do you think it is right for your bank to exercise control
on monthly basis as well as yearly?
(a) Yes (b) No
18. Has budgeting and budgetary control brought
accountability on the part of management?
Yes No
19. Does budgeting and budgetary control require top
management support?
Yes No

20. Do you think that the management generally accepts the

established procedure of monitoring the company’s
performance?
Yes
No
21. Do you think top management support budgeting and
budgetary control?
Yes
No.

88
22. Does the effective budgeting system in your bank
facilitate cost control?
Yes
No.
23. Does your organization set budgets?
Yes
No
24. If yes, which budgeting control method do you use?
a. previous year plus inflation ( )
b. incremental budgeting method ( )
c. Zero based budgeting method ( )
d. any other method ( ) (please specify)
25. Which policy do you the organization follow if cost
activities submitted by any manager are perceived to be
excessive?
a. Negotiation ( )
b. Upper management discretion
26. How do you evaluate the performance of a manager?....
according to success
a. success in meeting budgets ( )
b. Performance relative to others within the
organ-ization ( )
c. performance relative to competitors inside the
organization ( )
b. ability to control cost ( )
e. financial performance ( )

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f. dismal performance ( )

90