Budgetary control | elements and advantages of Budgetary control

Budgetary control

A system which uses budgets as a means of planning and Controlling all aspects of producing or selling commodities and services.

Elements of Budgetary control

These are the following elements of Budgetary control:-

(1) Organisation for budgetary control : The proper Organisation is essential for successful preparation of maintenance and administration of budgets.

(2)  Budget centres : A Budget centres is that part of  organisation  for which the budget is prepared. A budget centres may be a department, section of department or any other part of the department.

(3) Budget Manual : A Budget Manual is a document which spell out the duties and also the responsibilities of various executives concern with the budget. It specified the relation among various functionaries.

(4) Budget officer : The he chief executive who is the top of the organization, appoint some persons or budget officers.

(5)  Budget committee : In small scale concerns the accountant is made responsible for preparation and implementation of budgets. In large scale concerns, a committee known as budget committee is formed. The head of all important departments are made members of the committee. The committee is responsible for preparation and execution of budgets.

(6)   Budget period  : Budget period is the length of time for which a budget is prepared and employed. The budget period depends upon the following consideration.

1. The type of budget i,e sales budget, production budgets etc.
2. Nature of demand for the products.
3. The timing for the availability of finance.
4. The Economic situation of the country.
5. The length of trade cycle.

(7) Determination of key factors :  The budgets are prepared for all functional areas. Those budgets are interdependent and interrelated. A factor which influence all other budgets is known as key factors or principal factors.

Advantages of Budgetary control

These are the following advantages of Budgetary control:-

(a)  Maximisation of profits  : The budgetary control aim at the Maximisation of profits of the enterprise. To achieve the aim a proper planning and Coordination of different functions is undertaken.

(b) Co-ordination :  The working of different department and sectors is properly co ordinated. The budget of different department have a bearing on one another.  The Co-ordination of various executives and subordinate is necessary for achieving budgetary targets.

(c)  Specific Aim  :  The plans, policies and goals are decided by the  top management. Every Organizations is given with a target to achieve. The effort are directed towards achieving some specific goals.

(d)  Tool for measuring performance  :  By providing targets to various departments, budgetary control provides a tool for measuring managerial performance.

(e)  Economy : By budgeting, the resources are utilise in a most effective way which helps in Developing the economy.

(f) Determining weaknesses  :  The deviation in budgeted and actual performance will enable the determination of weak parts, efforts are concentrated on those aspects where performance is less than the stipulated.

(g)  Corrective action  : Through budgetary control the deviation of regularly reported so that necessary action taken at the earliest. In the absence of Budgetary control system the deviation can be determined at the end of financial period.

(h) Consciousness : It creates consciousness among employees by fixings targets for the employees, they are made conscious of their responsibility. Everybody knows what he is expected to do and he continues with his work uninterpreted.

(I) Reduces costs : In the present day competitive world budgetary control has a significants  role to play. Every businessmen tries to reduce the cost of production for increasing sales. He tries to have those combination of products where profitability is more.

(j)  Introduction of incentive scheme : Budgetary control system also enable the Introduction of incentive scheme of remuneration. The comparison of  actual and budgeted and actual performance will enable the use of such scheme.