Chapter 3.pptxChapter 3.pptxChapter 3.pptx

Chapter 3.pptxChapter 3.pptxChapter 3.pptx

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  1 CHAPTER 3 BUDGETARY CONTROL
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  2 NEEDS OF MODERNMANAGMENT  Various systems of costing provide information about the expenses incurred.  Their objective is ascertainment of cost.  Modern Management wants something more to make the concern successful. Modern Management wants: * All operations should be forecasted and planned ahead, as far as possible. * Compare actual result with the planned action for exercising control. Management is termed efficient, if maximum result are achieved with minimum costs and efforts.
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  3 WHAT IS THEBUDGET ..? Budget is the systematic plan for utilization of all types of resources, at its command. |It acts as a barometer of a business as it measures the success from time to time, against the standard set for achievement. Characteristics of Budget:  Comprehensive Business Plan  Prepared in Advance  Definite period of time  Expressed in quantitative form, physical or monetary terms, or both.  System of proper Fixation of Authority & Responsibility has to be in place.
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  4 CLASSIFICATION OF BUDGETS… Onthe basis of:- Time period:- a) Long term budget:-( longer than one year) b) Short term budget:-( less than one year) Conditions:- a) Basic budget:- ( unaltered over a period of time) b) Current budget:-( use over a short period of time & related on current conditions)
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  5 CLASSIFICATIONS CON…. Capacity:- a) Fixedbudget:-( remain unchanged) b) Flexible budget:-(changed as per level of activity attained) Coverage:- a) Functional budget:-( relate to the individual function in organization) b) Master budget:-( consolidated summary of the various functional budgets)
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  6 TYPES OF FUNCTIONALBUDGETS.. 1. Sales Budget. 2. Production Budget. 3. Production Cost Budget. 4. Raw Materials Budget. 5. Purchases Budget. 6. Labour Budget. 7. Production Overhead Budget. 8. Selling and Distribution Cost Budget. 9. Administration Cost Budget 10. Capital Expenditure Budget. 11. Cash Budget.
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  7 WHAT IS BUDGETARYCONTROL.. According to Chartered Institution of Management Accountants, London: “ The establishment of budget relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of the actual with the budgeted result, either to secure by individual action the objective of the policy or to provide a basis for its revision”
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  8 OBJECTIVES OF BUDGETARY CONTROL.. Planning: Budgetary control forces the management at all levels to plans, in time, all the activities to be done during the future period. Coordination : The Functions, be it production or marketing, are to be performed in a greater coordination for smooth completion & better results. Budget exercise develops team spirit amongst the employees to work in a coordinated manner. Budgetary Control forces executives to think & think as a group
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  9 OBJECTIVES OF BUDGETARY CONTROL.. Communication: A budget is communication device. Budget cannot be achieved without communicating to the concerned, what is expected of them to achieve. Control: Control refers to that action, necessary to bring the performance according to the original plan.
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  10 REQUISITES FOR SUCCESSFUL BUDGETARYCONTROL  Determination of the Objectives  Proper delegation of Authority & Responsibility  Proper Communication  Participation of all employees  Flexibility  Motivation
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  11 ADVANTAGES OF BUDGETARY CONTROL Communication  Motivation  Management by Exception  Overall Efficiency
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  12 LIMITATIONS OF BUDGETARYCONTROL  Uncertainty of future  Problem of co-ordination  Discourage efficiency  Timely revision required  Conflict among different department  Depend upon support of top management
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  13 FLEXIBLE BUDGET The expensesfor the production of 5,000 units in a factory are given below:- (as per unit rate) Materials 50 Labour 20 Variable overhead 15 Fixed overhead(50,000) 10 Admin exp(5% variable) 10 Selling exp(20% fixed) 6 Distribution exp(10% fixed) 5 Total cost per unit 116 Required budget for prepare for the 7,000 units & 9,000 units.
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  14 Production Activity per unit Rs. 7,000units 9,000 units Variable cost: Material cost 3,50,000 4,50,000 Labour cost 1,40,000 1,80,000 Variable overheads 1,05,000 1,35,000 Admin (5%) 3,500 4,500 Selling (80%) 33,600 43,200 Distribution(90%) 31,500 40,500 Total variable cost 6,63,600 8,53,200 Fixed cost Fixed overheads 50,000 50,000 Admin exp(95%) 47,500 47,500 Selling exp(20%) 6,000 6,000 Distribution (10%) 2,500 2,500 Total Fixed cost 1,06,000 1,06,000 Total cost of sale 7,69,600 9,59,200