Question

What type of budget works for different organizations? Identify at least three (3) types of budget techniques and list the why each technique is helpful and the advantages and disadvantages of each.

Answer 1

The budgetary control means formulation of future plans as per return expected in expressed and numerical terms. All kinds of organizations prepare budget for their units, departments and as a whole.

The budgetary control provides many kinds of control which are common to each and every organization with a little difference :

1. The budgetary control facilitates the management to allocate the resources.

2. They helps to accomplish the standards for the production of goods or services under a control system.

3. The budgetary control figures are framed logically which will provide the required rate of return to the organization.

4. They help in complying with the appraisal and evaluation of the managerial persons on their actual performance.

Three types of Budgetary controlling techniques are:

a) Financial Budgeting technique: This technique includes budgets like cash budget, Capital expenditure on fixed assets and the balance sheet budgetary control. The advantages of these budgets are that they confine the expenses as per the revenues or return on investment. The biggest disadvantages of the budgetary technique are that it quantifies the future in numerical terms whereas the future is uncertain and have many factors affecting them.

b) Operating budgeting technique: This technique includes operational budgets like the sales or revenue budget, different expenditure budgets and the various project budgets. The advantages are that managers would able to secure its targets by having controls over expenditures. The disadvantages are that the hands of managers and operational team are tide-down with least flexibility in cost variation. , and

c) Non-Monetary or Production Budgeting technique : These production budgeting techniques constitutes of three types to control all the production costs like Fixed costs budget, Variable costs budget and Semi-variable costs budget. Here, all costs are applied as per the product development department’s instructions. The production and purchase departments have to frame the activities according to the budgets so provided.