Question

Budget policy should incorporate what controls?

Answer 1

Budget policy should incorporate Budgetory Controls.

Budgetary control is a system of controlling cost which includes preparation of Budgets coordinating the departments and establishing responsibilities comparing performance with budgeted and acting upon results to achieve the maximum profitable.

The process of budgetary control includes:

• Preparation of various budgets.
• Continuous comparison of actual performance with budgetary performance.
• Revision of budgets in the light of changed circumstances.

Budgetary control serves 4 control purposes:

1. They help the manager’s co-ordinate resources;
2. They help define the standards needed in all control systems;
3. They provide clear and unambiguous guidelines about the organization’s resources and expectations, and
4. They facilitate performance evaluations of managers and units.

Objectives of Budgetary Control:-

1. Planning:-A budget is always prepared for the future period and it lays down targets regarding various aspects like purchase, production, sales, manpower planning, etc. This automatically facilitates planning.

2. Coordination:- For achieving the predetermined objectives, apart from planning, coordinated efforts are required. Budgeting facilitates coordination in the sense that budgets cannot be developed in isolation.

   For example, while developing the production budget, the production manager will have to consult the sales manager for a sales forecast and purchase manager for the availability of the raw material.

   The production budget cannot be developed in isolation.

   Similarly, the purchase and sales budget, as well as other functional budgets like cash, capital expenditure, manpower planning, etc, cannot be developed without considering other functions. Hence the coordination is automatically facilitated.

3. Control:- The preparation of budgets involves detailed planning about various activities like purchase, sales, production, and other functions like marketing, sales promotion, manpower planning. But planning alone is not sufficient.Budgets provide the basis for such controlling in the sense that the actual performance can be compared with the budgeted performance.

Types of Budgetary Controlling Techniques:- Budgetary control is a system for monitoring an organization’s process in monetary terms. Types of budgetary controlling techniques are;

1. Financial Budgets.
2. Operating Budget.
3. Non-Monetary Budgets.

Financial Budgets:- Such budgets detail where the organization expects to get its cash for the coming period and how it plans to spend it. Usual sources of cash include sales revenue, the sales of assets, the issuance of stock, and loans.On the other hand, the common uses of cash are to purchase new assets, pay expenses, repay debts, or pay dividends to shareholders.Financial Budgets are:-- 1.Cash Budget 2.Capital expenditure budget 3. Balance sheet budget

Operating Budgets:- This type of budget is an expression of the organization’s planned operations for a particular period. They are usually of the following types: 1.Sales or revenue budget 2. Expenses budget 3. Project Budget.

Non-Monetary Budgets:- Budgets of this type are expressed in non-financial sales or revenues and expenses, i.e. profit. If the anticipated profit figure is too small steps may be needed to increase the sales budget or cut the expense budget. Non Monetary Budgets are - Fixed and variable budget etc.