... the divisional managers submit proposed budgets for sales, production and inventory.levels,& expenses. Capital expenditure request also are formalised at this time. he expense budget include direct labour and all factory overheads items, separated into fixed and variable componets.Direct materials are budgeted seperatly in developing the production and inventory schedules.The expense budgets for each division are developed from each plants results, as measured by the % variation from an adjusted budget in the first six months of the currrent year and at arget expense reduction % established by the corporation to determine plant % the plant budget for just completed half year period is revised to recognise changes in operating procedures and cost outsid the control of management(eg labour wage rate changes & product sytle changes).The difference between the revised budget and thee actual expenses is controllable variance , expressed as a % of the actual expenses if un favourable , this expense is added to the corperate target expense reduction %.A favourable plant variance % is subtracted from the corperate target. if a plant had 2% unfavourable contrallable variance the corporate target reduction was 4% , the plants budget for next year should reflect cost proxmately 6% below this year actual cost . Next years final budget for the corporation , its division , and plants are adpoted after coporate analysis of the proposed budgets and a carefull review with each division...
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...2013 Budgetary Control as a Measure of Financial Performance of State Corporations in Kenya Kenneth Odour Adongo1 Ambrose Jagongo PhD, MKIM2 Abstract The importance of financial stability in enabling an organization to function efficiently and maximize the potential for service delivery cannot be underestimated. The quest for better service delivery under new public management in public organizations in Kenya necessitates the need for public organizations to have proper financial standing in order to run operations and motivate workers through better remuneration as well as improved working conditions. Critique of literature on factors affecting financial performance reveal that gaps remain on the influence of budgetary control on financial performance of public institutions. This study sought to investigate the relationship between budgetary controls and financial performance of state corporations in Kenya. The study sought to determine the salient features of budgetary controls in state corporations, establish the human factors within budgetary controls, establish the process of budgetary control in public organizations, and determine the challenges affecting budgetary control. A descriptive survey design was used to gather data from the state corporation’s managers of the sampled state corporations. 14 corporations were selected from the 138 to participate in the study. Purposive sampling was used to select 42 corporate services manager, finance manager and budget officer...
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...Budgetary control is the process by which financial control is exercised by managers preparing budgets for revenue and expenditure for each function of the organization in advance of an accounting period. It involves the continuous comparison of actual performance against the budget to ensure the plan is achieved or to provide a basis for its revision. The first disadvantage of budgetary control system is costly. The costs of compiling data and analyzing budgets are another disadvantage of the budgetary control process. Other forms of corporate control rely more directly on the opinions and judgment of senior officials. Budgetary control seeks to moderate this type of human judgment by introducing quantitative arguments, all of which come at a cost. When a business uses its existing operating budgets and financial statements to perform budgetary control, the cost is reduced. However, when leaders commission new financial reports, these costs rise, especially if they require hiring new employees to assist the accounting department. Another disadvantage of budgetary control is that it relies heavily on numerical data, sometimes at the expense of other useful information. For example, a department head who operates under her budget for the quarter may appear successful in a budgetary control analysis. However, if she saved money by reducing her staff and terminating skilled workers, the action may have a more negative, intangible effect on the business as a whole. Decisions...
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...THE EFFECT OF BUDGETARY CONTROL ON EFFCTIVENESS OF NON GOVERNMENTAL ORGANISATIONS IN KENYA REBECCAH NYAMBURA KIMANI A RESEARCH PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF MASTER OF SCIENCE FINANCE, SCHOOL OF BUSINESS, UNIVERSITY OF NAIROBI OCTOBER 2014 DECLARATION I declare that this project is my original work and has not been submitted for examination in any other university. Signed………………………………………Date…………………………………… REBECCAH NYAMBURA D63/71147/2014 This project has been submitted for examination with my approval as the university supervisor Signed………………………………………Date…………………………………… MR. MIRIE MWANGI Lecturer, Department of Finance and Accounting School of Business University of Nairobi ACKNOWLEDGEMENT I am deeply indebted to all those who in their own way contributed to successful completion of this study. First and foremost I thank the almighty God, to whom all knowledge, wisdom and power belong for sustaining me in good health, sound judgment and strength to move on and complete my master’s studies. Special appreciation goes to my supervisor for his dedication, guidance, valuable suggestion and ideas throughout the course of this project. Without his enormous support this study would not have been successful. Thanks to my family who always inspired me in every step to accomplish this study. I am eternally grateful for your love, encouragement and support in all my endeavors. DEDICATION I dedicate this project to my...
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...Summary Budgetary Control within public sector entities can be a difficult task due to the complexity of the system. A budget is a financial plan that contains expected revenues and proposed expenditures for a period of time. Every public sector entity needs an operating budget, which is prepared by an executive board and then approved by legislature. One the approved budget is adopted; it becomes a law and cannot be changed. If an entity exceeds its budget, it can be forced to pay hefty fines. The funding for public sector budgets is usually from taxes, loans, revenues, fines, inflation, donations and grants. When controlling revenues, it is important to record revenues as when they are earned. Unearned estimated revenues should remain as unrealized revenues. Budgetary control over expenditures follows the logical cycle: appropriations are recorded, and then encumbrances are recorded, followed by the expenditures, and then payment is disbursed. Public sector entities face both advantages and disadvantages of budgetary control. It is a challenge for such entities to operate within their proposed budgets due to budget cuts, budget surprises, and unforeseen costs, such as emergencies. This is evident in cities such as Detroit, Michigan; Atwater, California; and Fresno California. The most relevant implication of budgetary control was seen in the government shutdown, which occurred on October 1st, and last 16 days. This paper examines the importance of budgetary control and its challenges...
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...make his/her own decision. A control system is required to improve and consolidate control in their operating, revenue and cost activities. Budgetary control is described as the process of planning, controlling, coordinating and motivation through money values and departments within an organization. (Ryan, 2007) Budgetary control is a major feature of management control system in most organisations. The use of budgetary control in performance management has become more significant especially as a more integrative control mechanism in most organisations (YÜCEL and GÜNLÜK, 2007). Thus, this essay will assess the claim on the effectiveness of the budgetary control as a more integrative control mechanism for the organisations and how non-financial performance tool can be used to complement the budgetary control to provide accurate reporting on the performance of the organisation. Organisational and Budgetary Control In an organisation, the goals and objectives may differ in within each department, division and individual. It is important that every individual has to change their behaviour towards achieving organisation’s objective. (Flamholtz, Daz and Tsui, 1985). The organisation’s primary objective is to earn profits. The management uses financial measurement tools such as Economic Value Added (EVA), financial ratios, residual income and Master Budgets etc to measure the performance of each division as well as motivation and control. (Otley, 1999 & 2002) ...
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...terminology, “a budget is defined as the quantitative expression of a plan for a defined period of time. It may include planned sales volume and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows.”(CIMA Official Terminology, 2005). This in other word means the set out of a company’s objective for a period of time for an organization and it is usually conveyed in figures term. A budget has its advantages and disadvantages; they help stimulate forward thinking, help in organise the various aspects of the business and encourages performance (Mclaney & Atril, pg.461). However, it can be time consuming, it cannot deal with rapid change and it focuses more on short term target rather than value creation. (Mclaney & Atril, 4th edition, pg.462) Budgeting Method and differences A fixed budget only takes account of budget data for just one volume of activity. The formal definition is “A budget which is normally set prior to the start of an accounting period, and which is not changed in response to subsequent changes in activity or costs/revenues. It serves as a benchmark in performance evaluation” (Costing, T.Lucey, 7th edition, Pg.420) according to CIMA, it is defined as a “budget which is designed to remain unchanged irrespective of the volume of output or turnover attained” a good example is a master budget. Fixed budgets are most efficiently when used for planning purposes (ICSA.org.uk, 2014) A flexible budget is designed to...
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...MASTER MINDS - QUALITY EDUCATION BEYOND YOUR IMAGINATION 8. BUDGETARY CONTROL 1. DEFINE THE TERM BUDGET. Definition: Budget is a financial and /or quantitative statement, prepared and approved prior to a defined Period of time of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and employment of capital. Features: 1. 2. 3. 4. Financial and/or Quantitative Statement. Futuristic prepared and approved prior to a defined period of time. Goal Oriented for the purpose of attaining a given objective. Components Income, Expenditure and Employment of Capital. 2. WHAT ARE THE OBJECTIVES OF BUDGETING/PERFORMANCE BUDGETING? The objectives of Budgeting are 1. To encourage selfstudy in all aspects of a Company's operations. 2. To get all members of management to “put their heads” to the basic question of how the business should be run, to make them of a coordinated team operating in unison towards clearly defined objectives. 3. To promote the planning process and provide a sense of direction to every member of the organization. 4. To force a definition and crystallization of Company policies and aims. 5. To increase the effectiveness with which people and capital are employed. 6. To disclose areas of potential improvement in the Company’s operations. 7. To stimulate study of relationship of the Company to its external economic environment for improving the effectiveness of its direction...
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...Samarahan BM 701 Preview of Chapter 10 How budgets are used by management to control operations. Focuses on two management control : I. aspect of budgetary control; and II. responsibility accounting Preview of Chapter 10 Budgetary Control and Responsibility Accounting Budgetary Control Budget report Control activities Reporting System Static Budget Reports Examples Uses and limitation Flexible Budgets Why flexible budgets Development Case study Reports Responsibility Accounting Controllable vs noncontrollabe Performance Evaluation Reporting System Types of Responsibility Centers Cost Centers Profit Centers Investment Centers The content and organization chart of Chapter 10 Learning Objectives Describe the concept of budgetary control. Evaluate the usefulness budget reports. of static Explain the development of flexible budgets and the usefulness of flexible budget reports. Describe the concept of responsibility accounting Indicate the features of responsibility reports for cost centers. Identify the content of responsibility reports for profit centers. Explain the basis and formula used in evaluating performance in investment centers Learning Objectives Describe the concept of budgetary control. Evaluate the usefulness budget reports. of static Explain the development of flexible budgets and the usefulness of flexible budget reports. Describe the concept of responsibility...
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...There are steps to follow when creating a system to monitor and control various activities at different levels or divisions. This paper will talk about the concept and benefits of having a budgetary control system. The Concept Budgetary Control In order for a company to operate successful, it is important for the company to evaluate its financial status on a weekly, monthly and/or quarterly basis. In order to do so a budgetary control reporting system must be created. This system identifies which type of budget reports will be created to compare the actual financial activity of the company with the projected activity, when each report will be evaluated, and what information will be obtain from the reports. Once reports are analyzed by executives and managers try to determine what may have caused the budget variance as well as trying to correct the problem to improve the outcome. Budget Formats and How They Are Used The type of budget format used for a company depends on how the company wants to analyze its financial activity. The two budget formats are static and flexible. Static budget reports are used by an company that analyzes its financial activity as a whole. Many companies use a static budget report when creating a master budget. Flexible budget reports are used for a company that analyzes it financial activity by departments. There are companies that use both a static budget and flexible budget when analyzing financial activity because it provides a breakdown...
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...A budget can be defined as a formulised statement of the goals and the objectives of an organization in financial terms. It states the future projection of sales, revenues and profits that give managers a clear vision of targets to achieve in a year. (Montana and Charnov, 2000) Today Budgets are used by almost all companies as its use allows the managers to establish the objectives of the business in quantitative terms which is usually for a year. Budgetary control is a system of management control in which actual income and spending are compared with planned income and spending, so that you can see if plans are being followed and if those plans need to be changed in order to make a profit. (Financial Times) The major aim of any organization is to create wealth for their shareholders for that they need to make plans and the major plan for it is budgets. Budgets are also heavily linked to the strategy as budgets plan the future of an organization they must be implemented in the strategy of the organization. “A strategy can be viewed as describing how an organization matches its own capabilities and opportunity in the market place to accomplish its overall objectives.”(Bhimani 2012) The budget of an organization shows its financial capabilities and it must be prepared according to the long term strategy of the organization. This essay will hence examine the advantages and limitations of budgetary control and its effect on performance management. Organisations in the modern day...
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...Report on the US Government Budgetary Systems and Saudi Arabia Government Budgetary Systems Budgetary process of the US and Saudi Arabia are different from each other in many aspects. Budgetary systems of the US are based on the budget and Accounting Act of 1921 and Congressional Budget and Impoundment Control Act of 1974. Whereas budgetary systems of the Saudi Arabia are based on the rules and regulations devised by the Kingdom of Saudi Arabia. Budgetary system of the Saudi Arabia is not disclosed to the general public. National budget in Saudi Arabia compiled by the Ministry of Finance is approved by the Royal institution and then it is allowed to be published in the Official Gazette. Budgetary Systems of the Saudi Arabia was made on the basis of the Hijri year but in 1987 its basis was changed to the Gregorian calendar. In US budget is prepared when president submits a request to the congress for the preparation of the budget. Then Office of Management and Budget carries out the formulation process of the budget. Budget is prepared for all the institutions of the state from federal executive departments to the independent agencies. Budget Control Act of 2012 also plays its role to in the formation of the different provisions of the budget and controls it. Different resolutions related to the budget are also approved by the congress, House and Senate. Authorizing committee is capable of resolving any issues related to the budget process. Categories of the different types of...
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...to establish any budgetary legislation that contributes to the Federal budgetary process. The Budgetary and Accounting Act of 1921 has a statutory basis whereby the executive budget process demands that the President submits to the Congress a proposed budget for running the business of the Federal government annually (United States, 2017). This helps the president in doing his projects e.g. medical care and other responsibilities in the financial year. The General Accounting Office (agency in government accountability) is responsible for the budget allocation after approval by the Congress. The General Accounting Office is also responsible for provision...
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...Cash Budget 3 * Operating Budget 3 * Budgeting Administration 4 * Behavioural Aspect of Budgeting 4 * Participative Budgeting 5 * Top Down Process 6 * Bottom up Process 6 * Budgetary Slack 6 * Frequent feedback on Performance 7 * Monetary and Nonmonetary Incentives 7 * Realistic Standards 8 * Controllability of Costs 8 * Multiple Measures of Performance 8 * Conclusion 8 * References 9 Executive Summary: The following Accounting report contains information related to budgets, different types of budgets and how this all leads to change in different aspect of human behaviour. The objective of this report is to promote a reasonable amount of positive behaviour in an organization. There are five factors which are being discussed in this report, Participative budget, and frequent feedback on performance, Monetary and Nonmonetary incentives, Realistic Standards, Controllability costs. Under participative budget there are two levels of management the first one is top level management and the second is bottom level management. Participative budget also creates a slack which is known as budgetary slack for management. Introduction:- A budget is a list of all planned expenses and revenues and budget is a plan for saving and spending. Budget is an...
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...Budgetary Control There are two types of control, namely budgetary and financial. This chapter concentrates on budgetary control only. This is because financial control was covered in detail in chapters one and two. Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as: "The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision". Chapter objectives This chapter is intended to provide: marketing as a key marketing control technique An overview of the advantages and disadvantages of budgeting Structure of the chapter Of all business activities, budgeting is one of the most important and, therefore, requires detailed attention. The chapter looks at the concept of responsibility centres, and the advantages and disadvantages of budgetary control. It then goes on to look at the detail of budget construction and the use to which budgets can be put. Like all management tools, the chapter highlights the need for detailed information, if the technique is to be used to its fullest advantage. Budgetary control methods a) Budget: activities in a given period of time. -ordinate the activities of the organisation. An example would be an advertising budget or sales force budget. b) Budgetary control: can either exercise control action...
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