Meaning, Objectives of Budgetary Control | Cost Accounting - B Com PDF Download

Introduction

A budget serves as an accounting plan, representing a formalized course of action articulated in monetary terms. Essentially, it functions as a projection of anticipated income and expenses under specific expected operating conditions, offering a quantified blueprint for future activities. Every organization attains its objectives by coordinating diverse activities, making efficient planning essential. This underscores the crucial role of management in formulating business plans. Coordination of various activities within a company is achieved through the development of action plans for future periods, commonly known as budgets. Budgeting, as a management tool, is utilized for short-term planning and control, extending beyond a mere accounting exercise.

Meaning and Definition

Budget

As per the Chartered Institute of Management Accountants (CIMA) in the UK, a budget is defined as "A quantified plan expressed in monetary terms that is prepared and approved before a specified period. It typically outlines the projected income, anticipated expenses, and the capital to be utilized to achieve a specific objective."

Keller & Ferrara characterize a budget as "a plan of action designed to attain stated objectives, relying on a predetermined set of related assumptions."

G.A. Welsh describes a budget as "a written plan encompassing the anticipated activities of a firm over a specific time period."

One can elicit the explicit characteristics of budget after observing the above definitions. They are…

• It is mainly a forecasting and controlling device.
• It is prepared in advance before the actual operation of the company or project.
• It is in connection with definite future period.
• Before implementation, it is to be approved by the management.
• It also shows capital to be employed during the period

Budgetary Control

Budgetary Control involves cost management by creating budgets. Budgeting is a component of budgetary control. As per CIMA, "Budgetary control is the creation of budgets aligned with the responsibilities of executives and a continual comparison of actual results with the budgeted figures. This is done either to achieve the policy objectives through individual actions or to offer a foundation for revising the policy."

The main features of budgetary control are:

1. Establishment of budgets for each purpose of the business.
2. Revision of budget in view of changes in conditions.
3. Comparison of actual performances with the budget on a continuous basis.
4. Taking suitable remedial action, wherever necessary.
5. Analysis of variations of actual performance from that of the budgeted performance to know the reasons thereof

Objectives of Budgetary Control

Budgeting is a proactive form of planning, primarily functioning as a means of managerial control and serving as a central element in any efficient control framework.

The objectives of budgeting may be summarized as follows:

Planning
Planning is described as the formulation of an envisioned future state for an entity, grounded in the belief that this future position can be achieved through continuous management efforts. It involves the creation of detailed plans encompassing aspects such as production, sales, raw-material needs, labor requirements, and capital additions. Planning allows for the anticipation and solution of potential issues well in advance through careful analysis. In essence, budgeting compels management to engage in forward-thinking, foreseeing and preparing for expected conditions. Planning is an ongoing process, necessitating continual adjustments in response to changing circumstances.

Co‐ordination 
Coordination is a crucial aspect influenced by budgeting, as it aids in establishing and sustaining coordination within an organization. Budgeting supports managers in aligning their efforts to address business challenges in tandem with the goals of their respective divisions. Effective planning and business operations play a significant role in attaining targets. The absence of coordination within an organization becomes evident when a department head is allowed to expand their department based solely on its specific needs, potentially negatively impacting other departments and altering their performance. Therefore, coordination is essential at both vertical and horizontal levels.

Measurement of Success
Budgets serve as a valuable tool for communicating to managers the extent to which they are meeting predefined targets. In numerous organizations, it is common to reward employees based on their achievement of budget targets, or a manager's promotion may be tied to their track record of budgetary success. Success is evaluated by comparing current performance with that of the previous period.

Motivation
The budget is consistently seen as an effective instrument for motivating managers to accomplish tasks aligned with business objectives. Active participation in the budget preparation serves as a powerful motivating factor for individuals to strive towards achieving the set goals.

Communication: A budget serves as a means of communicating information within a firm. The standard budget copies are distributed to all management people provide not only sufficient understanding and knowledge of the programmes and guidelines to be followed but also give knowledge about the restrictions to be adhered to.

Control: Control is essential to make sure that plans and objectives laid down in the budget are being achieved. Control, when applied to budgeting, as a systematized effort is to keep the management informed of whether planned performance is being achieved or not.