Question

List two broad measures of budgetary control.

Answer 1

Budgeting:

Budgeting refers to a process that is carried out in the businesses. Budgeting involves various processes which are carried out for the preparations of some of the reports that will reflect the financial position of the business or the entity concerned.

Budgeting is regarded as a managerial process which is conducted for the preparations as well as planning of budgets and also for conducting budgeting control procedures. Budgeting is very important. In process of budgeting future goals are estimated and also comparison is made between the budgeted figures and actual figures to know the deviations and take corrective actions.

In the budgetary control the objectives of the company are developed. The actual and the budgeted results are analyzed to know the amount of difference. Then, the actions which are required to correct the difference are required to be taken. The future plans of the company are required to be modified so that the company can achieve its objectives.

The budgeting would be effective if there is sound organizational structure as the authority and responsibility is stated clearly in such type of organization. A budget is considered to be effective if it is prepared on the basis of research and analysis as it provides realistic goals which will be helpful for the growth of the company and will also result in increase in profits of the company.

The acceptance of budget by all level of management is also essential for effective budgeting. Actual results needs to be compared with budgeted results. Performance reports are a tool used by the management to compare actual results with budgeted results. This comparison at regular intervals helps in proper follow up and also enables the management to make necessary corrections and changes in the budget.

Budgetary control measures:

1. The budget helps the management to take necesaary decisions with the help of making plans. The company can estimate the costs to be incurred and then take necessary decisions regarding the changes to be made when the actual results does not match with the planned results.

2. The budgetary control helps to make comparison in the financial performance of a company and its operating performance. It is also used to analyse the performance of the employees of the company. The company prepares responsibility budget to know about the performance of employees.

Responsibility budget is the budget which is prepared by higher level management to measure and track the performance of departmental managers. Responsibility budget is prepared for controllable expenses and revenues. It is prepared for the departments whose expenses and revenues are controllable. Actual expenses and revenues are compared with the budgeted figures to analyze the performance of the department. It also helps higher level management to measure and analyze the efficiency and effectiveness of departmental managers.