MIDHUN JOHNY GEORGE

ΙΙ PG M.COM
PG DEPARTMENT OF COMMERCE
ST.THOMAS COLLEGE, PALAI
1. Essentials of an effective Budgetary Control System
2. Preliminaries for the adoption of Budgetary Control system
3. Organization for Budgetary Control
4. Budget Manual
5. Budget Period
6. Rolling Budget
7. Principal Budget
Essentials of an Effective Budgetary Control System
1. Support of top management
2. Reasonable goals – realistic
3. Clear objective
4. Participation by responsible executives – to ensure
proper implementation.(formulation)
5. Appropriate accounting system – depend on
accounting dept for historical data
6. Continuous budget education – objectives and
techniques
7. Maximum profit
8. Constant Vigilance – compare actual and budgeted
data , reporting of variance
9. Cost of the system
10. Co-ordination with standard costing
 Preliminaries / steps for the adoption of
Budgetary Control System

1. Organization chart – clear idea of authority and

responsibility
2. Clearly define business objectives, plans , policies
and scope of budgetary control
3. The budgeted output should be clearly stated.
4. The indication of budget or key factor before
starting of budgets.
5. Top management support
6. There must be efficient system of accounting
7. Setting up of Budget Committee for the
establishment and execution of the plan
8. Proper system of communication and reporting
9. Budget centers - for cost control and disclose poor
performance of different sections.
10. Budget manual – charter of programme, plan and
procedure for execution, length of budget period
11. Motivate workers – participation in budget
formulation
Organisation for Budgetary Control

CHIEF
EXECUTIVE

BUDGET
OFFICER

SALES PRODUCTION PURCHASING PERSONNEL

ACCOUNTANT
MANAGER MANAGER MANAGER MANAGER
Duties of Budget Controller/Director/Officer
1. Co-ordination among functional managers and provide
budget guidance.
2. To revise and amend budget manual
3. To prepare budget programme and issue instructions
4. To revise and scrutinize the functional budgets
5. To discuss proposed department requirements and
overall budgets before the budget committee
6. To revise budgets according to directions of budget
committee.
7. To place before BOD for final approval
8. To collect actual cost from cost office and compare it
with budgeted figures in budget reports.
Budget Committee
• Budget controller is assisted by budget committee
• Advisory committee – General manager and functional
managers
• To receive, scrutinize, revise and approve functional
budgets
• To receive reports and compare actual with budgeted
figures
• To analyze deviations and suggest remedy or revision of
budget
Budget Manual
• document schedule or booklet
• written document which gives everything relating to
the preparation and execution of various budgets.
• it includes steps and the methods for developing
various budgets and
• method of reporting performance against the budget
• refer it for guidance and information about budgetary
process.
Contents of budget manual:
1. Introduction and brief explanation – objects,
benefits and principles of budgetary control
2. Organization chart – duties of personnel,
preparation of functional budgets (department)
3. Shows authority and responsibility for budgtet
approval
4. The entire process of budgeting programme – time
table for periodical reporting
5. Procedure to be followed through out the system
 Budget Period
• period for which a budget is prepared and employed
• factors – type of business and the control aspect
Type of business
 seasonal industries – food or clothing - short budget -
to cover one season
 heavy capital expenditure industries – long budget –
to meet the requirements of business
Control aspect
 A budget period should be short
 So that actual results can be compared with the
budget each week end or month end
 Short term budgets will help in exercising control
over day-to-day operations.
 It should not be too short , so that there may be
sufficient time before budget implementation
Time plan for budget preparation
a) Long term budgets – 3 to 5 yrs – for expansion and
modernization – introduction of new products
b) Annual budgets – coinciding with financial
accounting year – for operational activities like
sales, purchase, production,…
c) Short term budgets – for control purpose – monthly
or weekly budget – watching progress of actual
performance against targets – taking corrective
actions.
Rolling or Continuous Budget
• It is updated continuously by adding a further
period ( a month or quarter) and deducting a
corresponding earlier period.
• It is a continuous process
• 12 months forecast is available
• costly
Principal Budget/ Limiting Factor
• It is an important factor that would affect all the
functional budgets to a large extent.
• These factors will limit the volume of output
• It is the governing factor which is a major constraint
on all the operational activities of the organization.
• Eg: customer demand, availability of raw materials,
availability of labour, plant capacity, cash position,…
• The budget relating factor should be prepared first
• and other budgets should be prepared on the basis
of that factor.
• All budgets should be co-ordinated to achieve result
• Principal budget factor is not static