Question

un Jul Duugel, along with lnventory considerations. 9) A plan that shows the expected cash inflows and outflows during the budget perio including receipts from loans needed to maintain a minimum cash balance and repayments loans. (10) Additional monthly or quarterly budgets to replace the ones that have lapsed as budget period goes by. 20) Briefly describe the process by which budgets are developed and administered.

Answer 1

A budget a formal course of action for future period expressed in monetary terms. It is formulated with an objective to achieve strategic objectives of an organization. It gives a competitive edge to organization in market place. Budgeting is a formal process and helps in efficient management and allocation of resources.

Budgetary control involves the following process:

• Organization for budgeting- This involves setting up a definite plan of action for Budgetary control exercise. The responsibility of each executive must be clearly defined. There should be no scope for ambiguity and uncertainty in implementation of budget
• Budget Manual- A Budget manual should be prepared specifying the goals and objectives of an organization. It also defines the roles and responsibilities of the persons engaged in the whole exercise. It is a formal record defining the functions and responsibilities of each executive in an organization. The methods and procedures of budgetary control are standardized in this manual.
• Responsibility for Budgeting – This involves setting up Budget Committee and appointing a controller to monitor budgets. The committee is also represented by various functional heads.
• Budget procedure- this involves defining the procedure of creating budget. For example determining key factors in budgeting like material availability, Sales targets, labor hours etc. Each functional team work on their functional budgets and all functions submit their budget to the main budget committee
• Budget Communication – Budgets which are finalized should be communicated to all the employees in the organization. Budget acts as a target against which actual performance will be monitored at the end of the budget period for giving performance incentives
• Regular Monitoring - Budgeting exercise is successful only when actual results are monitored against the budget at regular interval by the respective functions. Hence there should be periodical meetings to monitor actual performance and take remedial actions for deviations