PPT - Budgetary Control | Cost Accounting - B Com PDF Download

 Page 1


Budgetary Control As A Control Tool
Definition Budget:
A financial and quantitative statement prepared and 
approved prior to a defined period of time
Characteristics of Budget:
1. It estimates a profit potentials of the business unit
2. It is stated in monetary terms
3. It generally covers a period of one year
4. It is Management’s commitment
5. Budget proposals are  reviewed & approved by an 
higher authority
6. Periodically actual financial performance is compared 
with  standard budget & variance is calculated
Page 2


Budgetary Control As A Control Tool
Definition Budget:
A financial and quantitative statement prepared and 
approved prior to a defined period of time
Characteristics of Budget:
1. It estimates a profit potentials of the business unit
2. It is stated in monetary terms
3. It generally covers a period of one year
4. It is Management’s commitment
5. Budget proposals are  reviewed & approved by an 
higher authority
6. Periodically actual financial performance is compared 
with  standard budget & variance is calculated
Difference between Budgeting & Strategic Planning
Distinguishing  
Points
Budgeting Strategic Planning
Period Prepared for Single  year Focuses on activities 
that extended over a 
period of several years
Structure Structured by responsibility 
centers
Structured by product 
lines 
Use Used to influence a 
managers performance 
before the fact & to 
appraise  performance 
Strategic plans are long 
term it is Middle level 
management’s activity
Concern with Coordination of Activities of 
various Dept.
concerned to efficient 
use of resources
Focus Assignment of 
Responsibility
formal statement of 
specific plan i.e. how to 
reach a given 
destination
Page 3


Budgetary Control As A Control Tool
Definition Budget:
A financial and quantitative statement prepared and 
approved prior to a defined period of time
Characteristics of Budget:
1. It estimates a profit potentials of the business unit
2. It is stated in monetary terms
3. It generally covers a period of one year
4. It is Management’s commitment
5. Budget proposals are  reviewed & approved by an 
higher authority
6. Periodically actual financial performance is compared 
with  standard budget & variance is calculated
Difference between Budgeting & Strategic Planning
Distinguishing  
Points
Budgeting Strategic Planning
Period Prepared for Single  year Focuses on activities 
that extended over a 
period of several years
Structure Structured by responsibility 
centers
Structured by product 
lines 
Use Used to influence a 
managers performance 
before the fact & to 
appraise  performance 
Strategic plans are long 
term it is Middle level 
management’s activity
Concern with Coordination of Activities of 
various Dept.
concerned to efficient 
use of resources
Focus Assignment of 
Responsibility
formal statement of 
specific plan i.e. how to 
reach a given 
destination
Budgeting Process:
Steps:
1. Call for expenditure proposals from various dept.
2. Develop revenue projections based on projected 
base activity
3. Evaluate the proposals
4. Discuss preliminary with senior Manager
5. Finalize the budget
6. Provide regular reports
7. Conduct the annual review
Page 4


Budgetary Control As A Control Tool
Definition Budget:
A financial and quantitative statement prepared and 
approved prior to a defined period of time
Characteristics of Budget:
1. It estimates a profit potentials of the business unit
2. It is stated in monetary terms
3. It generally covers a period of one year
4. It is Management’s commitment
5. Budget proposals are  reviewed & approved by an 
higher authority
6. Periodically actual financial performance is compared 
with  standard budget & variance is calculated
Difference between Budgeting & Strategic Planning
Distinguishing  
Points
Budgeting Strategic Planning
Period Prepared for Single  year Focuses on activities 
that extended over a 
period of several years
Structure Structured by responsibility 
centers
Structured by product 
lines 
Use Used to influence a 
managers performance 
before the fact & to 
appraise  performance 
Strategic plans are long 
term it is Middle level 
management’s activity
Concern with Coordination of Activities of 
various Dept.
concerned to efficient 
use of resources
Focus Assignment of 
Responsibility
formal statement of 
specific plan i.e. how to 
reach a given 
destination
Budgeting Process:
Steps:
1. Call for expenditure proposals from various dept.
2. Develop revenue projections based on projected 
base activity
3. Evaluate the proposals
4. Discuss preliminary with senior Manager
5. Finalize the budget
6. Provide regular reports
7. Conduct the annual review
Essential Element of Budget:
1. Objective: Have to set the objective first
2. Understanding of Cost Behavior : Need to 
understand different elements of costs attached with
3. Forecasting:  Of market, customer preference, 
competitor, Govt policies
4. Coordination: Between each department, different 
level of Mgt
5. Communication & Reporting: Between divisional 
and functional Manager
6. Flexibility: Must have a scope for Adjustment based 
on actual situation
7. Accounting  data support: Past data if available.
Page 5


Budgetary Control As A Control Tool
Definition Budget:
A financial and quantitative statement prepared and 
approved prior to a defined period of time
Characteristics of Budget:
1. It estimates a profit potentials of the business unit
2. It is stated in monetary terms
3. It generally covers a period of one year
4. It is Management’s commitment
5. Budget proposals are  reviewed & approved by an 
higher authority
6. Periodically actual financial performance is compared 
with  standard budget & variance is calculated
Difference between Budgeting & Strategic Planning
Distinguishing  
Points
Budgeting Strategic Planning
Period Prepared for Single  year Focuses on activities 
that extended over a 
period of several years
Structure Structured by responsibility 
centers
Structured by product 
lines 
Use Used to influence a 
managers performance 
before the fact & to 
appraise  performance 
Strategic plans are long 
term it is Middle level 
management’s activity
Concern with Coordination of Activities of 
various Dept.
concerned to efficient 
use of resources
Focus Assignment of 
Responsibility
formal statement of 
specific plan i.e. how to 
reach a given 
destination
Budgeting Process:
Steps:
1. Call for expenditure proposals from various dept.
2. Develop revenue projections based on projected 
base activity
3. Evaluate the proposals
4. Discuss preliminary with senior Manager
5. Finalize the budget
6. Provide regular reports
7. Conduct the annual review
Essential Element of Budget:
1. Objective: Have to set the objective first
2. Understanding of Cost Behavior : Need to 
understand different elements of costs attached with
3. Forecasting:  Of market, customer preference, 
competitor, Govt policies
4. Coordination: Between each department, different 
level of Mgt
5. Communication & Reporting: Between divisional 
and functional Manager
6. Flexibility: Must have a scope for Adjustment based 
on actual situation
7. Accounting  data support: Past data if available.
Types of Budget
Long term
Interim
Short 
term
Operating
Financial
Sales,
Production,
Purchase,
R&D
Cash,
Projected
Income, 
Budgeted 
Balance 
sheet
Fixed
Flexible