Budgets and Budgetary Control
Budget: Budget is a financial and/or quantitative statement prepared prior to a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.
Budgeting: Budgeting refers to formulation of plans for future activity which lays down carefully determined objectives and programmes of activity and provide yard sticks by which deviations from planned targets can be measured.
Budgetary Control: It refers to principles, procedures and practices of achieving given objectives through budgets and budget reports. It contains the following:
1. Establishment of budgets
2. Measurement of actual performance
3. continuous comparison of actual with budgeted performance
4. Analysis of causes of variations and reporting to management for corrective actions and
5. Revision of budgets in the light of changed circumstances, if necessary.
Functional classification of Budgets
1. Sales budget
2. Selling & Distribution cost budget
3. Production budget
4. Production cost budget
5. Purchases budget
6. Personnel budget
7. Research budget
8. Master budget
9. Capital budget
10. Office and administration budget
11. Plant utilization budget
12. Cash Budget etc.
Example: Budgeted estimates are given below. The requirement is to prepare a Selling Overhead Budget. (per month)
Advertisement $1,000
Salaries to sales department $1,000
Fixed expenses of sales department $750
Salaries and DA $3,000
The sales during the 3 months-period are estimated as follows:
1st Month - $80,000
2nd month - $90,000
3rd month - $100,000
Sales Commission – 1% on sales
Carriage outwards: Estimated as 5% on sales
Solution:
Selling overhead budget for the period…….
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1st Month
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2nd Month
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3rd Month
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Fixed Overheads:
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Advertisement
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$1,000
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$1,000
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$1,000
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Salaries of sales dept.
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$1,000
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$1,000
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$1,000
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Expenses of sales dept.
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$750
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$750
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$750
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Salesmen’s Remuneration:
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Salaries and D.A
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$3,000
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$3,000
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$3,000
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Total Fixed Overheads
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$5,750
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$5,750
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$5,750
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Variable Overheads:
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Sales commission(1% on sales)
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$800
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$900
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$1,000
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Carriage outwards(5% on sales)
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$4,000
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$4,500
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$5,000
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Total variable overheads
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$4,800
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$5,400
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$6,000
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TOTAL OVERHEADS
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$10,550
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$11,150
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$11,750
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