Types of Budgetary Control


Meaning of Budgetary Control

The budgetary control is an essential tool of the management for controlling costs and maximizing about profits. Budgetary control helps the organization to reduce the cost of manufacturing and increase the profit of the organization.

“the establishment of budget relating to the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budget results, either to secure by individual action the objective of that policy or to provide a basis for its revision.”

The chartered Institute of Management Accountants, London

Types of Budgetary Control

Sales Budget

For the sales budget following factors should take off into consideration:
(a) Past sales figures and trend
(b) Salesman’s estimates
(c) Plant capacity
(d) General trade prospects
(e) Orders or hand
(f) Proposed expansion of discontinuance of products
(h) Potential market
(i) Financial market

Zero Base Budgeting

ZBB is a new technique designed to revitalise budgeting. A company should not only make decisions about the proposed new programmes but it should also from time to time review the Appropriateness of the existing programmes.
Zero base budgeting as the term suggests, examines a programme or function be allowed. The manager proposing the activity has, therefore, to prove that the activity is essential and the various amounts asked for are really reasonable taking into account the volume of activity.

Production Budget

This budget provides an estimate of the total volume of production productwise with the scheduling of operations by days, weeks and months a forecast of the closing finished product inventory. The responsibility of the total production budget lies with works manager and that of Departmental Production Budgets lies with Departmental Works Manager.

Importance of Budgetary Control

  • It brings efficiency and economy in the working of the business enterprises. Even though a monetary reward is not offered, the budget becomes a game-a goal to achieve or a target to shoot at-and hence it is more likely to be achieved or hit than if there was no predetermined goal or target.
  • It guards against undue optimism leading to over expansion because the targets are fixed by the executives after cool and careful thoughts.
  • Uniform policy without the disadvantages of a military type of business organisation can be pursued by all divisions of the business by means of centralisation of budgetary control.
  • Management which have developed a well-ordered budget plan and which operate accordingly, receive greater favour from credit agencies.