Budgeting and Budgetary

Control
Arun Kumar D C

Budgeting
According to CIMA
A Financial or Quantitative statement prepared
prior to a defined period of time, of the policy
to be pursued during the period for the
purpose of achieving the given objective.
It is forward looking
Prepared in quantitative or units or both
For a particular time frame

Budgetary control
Control in which actual results are

compared with the budgeted results

Steps in Budgetary control
Developing Budgets
Recording the actual
Comparison between budgeted and actual
Corrective action

Objectives of Budgetary Control

To operate the business efficiently
Elimination of waste and increase in

profitability
Anticipate the capital expenditure for
future
Centralize the control system
Correction of Deviations from the
standards
Fixation of Responsibility

Advantages of Budgetary
Control
Maximization of Profits
Co-ordination
Measuring the performance
Corrective Action
Reward System
Goal Congruence

Limitations of the Budgetary Control

Uncertain Future
Need to be revised every time
People try to perform only up-to budget
Conflict among different departments
Depends on the support of top

management

Types of Budget
Classification according to Time
Long Term Budget
Budget for long term planning of business. Usually for more
than 5 years.
It is done by the top level management.

Short Term Budget

For a shorter duration. Mostly on the operation fronts and
achievement of long term objectives

Current Budget
Generally for a month or a week. Done at lower level, mainly
on operations

Classification Based on Functions

Operating Budget
Budget of different activities or operations. E.g. Sales
Budget, Material Budget, Purchase Budget, Labor budget
etc.
Operating Budget Consists of
Programme Budget
Shows revenues and costs of each line of product or project
Responsibility Budget
Displays the persons responsible for achieving the targets.
Usually prepared for responsibility centres.

Financial Budget
Concerned with cash inflows and
disbursements.
E.g. Cash Budget, Working Capital Budget,
Capital Expenditure budget etc.

Master Budget
It is the summary of the budget incorporating
functional areas.

Based on Flexibility
Flexible Budget
Budget which is prepared for different levels of
capacity utilization
It is a series of fixed budgets

Fixed Budget
Budget prepared assuming a fixed capacity
utilization.
Irrespective of the level of activity same budget
will be used

 Sales Budget

A sales budgetis a detailed schedule

showing the expected sales for the budget
period. An accurate sales budget is the key
to the entire budgeting in some way. If the
sales budget is sloppily done then the rest
of the budgeting process is largely a waste
of time.

Thank You