Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

Cost Accounting

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B Com : Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

The document Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev is a part of the B Com Course Cost Accounting.
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WHAT IS BUDGETARY CONTROL?
Budgetary control is the process by which budgets are prepared for the future period and are compared with the actual performance for finding out variances, if any. The comparison of budgeted figures with actual figures will help the management to find out variances and take corrective actions without any delay.

OBJECTIVES OF BUDGETARY CONTROL
The main objectives of budgetary control are given below:
1. Defining the objectives of the enterprise.
2. Providing plans for achieving the objectives so defined.
3. Coordinating the activities of various departments.
4. Operating various departments and cost centres economically and efficiently.
5. Increasing the profitability by eliminating waste.
6. Centralizing the control system.
7. Correcting variances from sit standards.
8. Fixing the responsibility of various individuals in the enterprise.

ADVANTAGES OF BUDGETARY CONTROL
Budgetary control has become an important tool of an organization to control costs and to maximize profits. Some of the advantages of budgetary control are:
1. It defines the goals, plans and policies of the enterprise. If there is no definite aim then the efforts will be wasted in achieving some other aims.
2. Budgetary control fixes targets. Each and every department is forced to work efficiently to reach the target. Thus, it is an effective method of controlling the activities of various departments of a business unit.
3. It secures better co-ordination among various departments.
4. In case the performance is below expectation, budgetary control helps the management in finding up the responsibility.
5. It helps in reducing the cost of production by eliminating the wasteful expenditure.
6. By promoting cost consciousness among the employees, budgetary control brings in efficiency and economy.
7. Budgetary control facilitates centralized control with decentralized activity.
8. As everything is planned and provided in advance, it helps in smooth running of business enterprise.
9. It tells the management as to where action is required for solving problems without delay.

DISADVANTAGES OR LIMITATIONS OF BUDGETARY CONTROL
The following are the limitations of budgetary control:
1. It is really difficult to prepare the budgets accurately under inflationary conditions.
2. Budget involves a heavy expenditure which small business concerns cannot afford.
3. Budgets are prepared for the future period which is always uncertain. In future, conditions may change which will upset the budgets. Thus, future uncertainties minimize the utility of budgetary control system.
4. Budgetary control is only a management tool. It cannot replace management in decision-making because it is not a substitute for management.
5. The success of budgetary control depends upon the support of the top management. If there is lack of support from top management, then this will fail.

Budget and Budgetary Control Problem 1:
Prepare a flexible budget for production at 80% and 100% activity on the basis of the following information:
Production at 50% capacity 10,000 units
Raw materials Rs.100 per unit
Direct labour Rs.50 per unit
Expenses Rs.20 per unit Factory expenses Rs.1,00,000 (60% fixed)
Administration expenses 60,000 (50% variable)
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

Budget and Budgetary Control Problem 2:
Black and White Ltd. manufactures two products A and B. An estimate of the number of units expected to be sold in the first six months of 2003 is given below:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
It is anticipated that:
(i) There will be no work-in-progress at the end of any month;
(ii) Finished units equal to 20% of the anticipated sales for the next month will be in stock at the end of each month including December 2002.
The budgeted production and production cost for the year ending 31.12.2003 are as follows:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
(a) A production budget showing the number of units to be manufactured each month.
(b) A summarised production cost budget for the 6 months period from January 2003 to June 2003.
Solution:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

Budget and Budgetary Control Problem 3:
A Single product company estimated its sales for the next quarter wise as under:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
The opening stock of finished goods is 10,000 units and the company expects to maintain the closing stock of finished goods of 16,250 units at the end of the year. The production pattern in each quarter is based on 80% of the sales of the current quarter and 20% of the sales of the next quarter.
The opening stock of raw materials in the beginning of the year is 10,000 kgs. and the closing stock at the end of the year is required to be maintained at 5,000 kgs. Each unit of finished output requires 2 kgs. of raw materials.
The company proposes to purchase the entire annual requirement of raw materials in the first three quarters in the proportion and at the prices given below:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
The value of the opening stock of raw materials in the beginning of the year is Rs.20,000. You are required to present the following for the next year quarter wise.
(i) Production budget in units,
(ii) Raw material consumption budget in quantity.
(iii) Raw material purchase budget in quantity and value.
(iv) Price store Ledger card of raw materials using FIFO method.
Solution:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

Budget and Budgetary Control Problem 4:
From the following information available from a company, prepare Cash Budget (monthly) for April, May and June, 2003:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
Solution:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

Budget and Budgetary Control Problem 5:
From the following information prepare a cash budget for the quarter ending 30.6.2000:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
(iii) Purchases are paid one month after.
(iv) Wages—25% in arrears in the following month.
(v) Other expenses are paid at a lag of one month.
(vi) Income Tax Rs.25,000 due on or before 30.6.2000.
Solution:
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev
Budgetary Control - Cost Accounting Techniques, Cost Accounting B Com Notes | EduRev

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