IGNOU : M.COM : MCO 5 : UNIT 8 : Q - 1. Define budgeting and Budgetary control. State the objective of Budgeting.

Ans. Budgeting is a process, which includes two important functions: Budget and Budgetary control. Budget is a planning function and budgetary control is a controlling system or technique. A manager looks to the future, searches for alternative courses of action and predetermines a course of action to be taken in relation to known events and the possibilities of future problems. Thus, the budget will do this work for the activities of a business enterprise. I.C.M.A., London defines the budget as “Budget is 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 object”.

Budgetary control is a system and a technique which uses budgets as a means of controlling all aspects of the business and is designed to assist management in the allocation of responsibility and authority, in the measurement of actual performance, in the analysis of variations between budgeted and actual results and to develop basis of measurement, in the light of experience gained and results achieved, with which to evaluate performance and efficiency of the operations. Thus, a budget is a means and budgetary control is the end result.

OBJECTIVES OF BUDGETING

It is a well known fact that a planned activity has better chances of success than an unplanned one. The budgeting is a forward planning and effective control tool. Thus, the objectives of the budgeting are:

a) To control the cost and increase revenue and thereby maximise profit, so as to know profit at different level of production and best production level.

b) To run production activities in efficient manner by lay behind the chances of interruption in production process due to lack of material, labour etc.

c) To bring about coordination between different functions of an enterprise, which is essential for the success of any enterprise.

d) To incorporate measures of calculation of deviations from budgeted results and analysis of the same, whereby responsibility can be fixed and controlling measures/action can be taken.

e) To ensure that actions taken are in accordance with the targets and if required, to take suitable corrective action.

f) To predict short-term and long-term financial positions for better financial position and management of working capital in better manner.