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Budgetary Control
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BUDGETRY CONTROL
PRESENTED BY – GROUP 5
BUDGET – A budget is a financial or quantitative statement , prepared prior to a defined period of time , for the purpose of attaining a given objective
BUDGETRY CONTROL – It is a system of planning and controlling COSTS.
ORGANIZATION FOR BUDGETRY CONTROL
Budget Centre Organization Chart Budget Committee Budget Manual Budget Period
Level of Activity Principal Budget Factor - Sales Activity Plant Capacity Raw Material Labour Management Working Capital
Purchase Manager
DevelopManager
R & DBudge
t
Production Manager
SalesManage
r
Purchasing
Budget
Production costAdmin. Cost,
Capital expendi
ture
Labour
Production
Budget
Selling andDist.
Budget
Personnel
Manager
Accountant
Chief Executive
Budget
Officer
FUNCTIONAL BUDGET
A functional budget is a budget of INCOME and/or EXPENDITURE applicable to particular function.
FUNCTION- Refers to a department or a process.
Example – Sales , production , Purchase , Administration Cost etc…
The SALES BUDGET is a forecast of total sales which may be expressed in monetary or qualitative terms.
Generally quantitative budget is prepared first then it is translated into monetary value
Example
Budgeted sales for year 2004 X - 1600 units at Rs. 10 each Y - 800 units at Rs. 9 each
Actual sales for year 2004 X- 2000 units at Rs. 10 each Y- 400 units at Rs. 9 each
Decision Taken is – Increase price of X by 1/- and Decrease price
of by 1/-.
Budgeted sales of 2005 X- 1920 at 11/- Y- 840 at 8/-
SALES BUDGET
SELLING & DISTRIBUTION COST BUDGET
The Selling and Distribution Cost Budget is a forecast of the cost of selling and distribution of the goods during the budget period.
Budget is based upon the SALES VOLUME
ELEMENT OF COST BUDGET PREVIOUS BUDGET
1) Direct selling expensesSalariesCommissions, etc…
- -
2) Sales Office Expenses
-
3)Distribution Expenses
-
4)Advertising Expenses
-
TOTAL 1+2 +3 + 4 1+2 +3 + 4
Production Budget is a forecast of the production for the budget period. It may be expressed in terms of –
• Units• Standard Hours(A standard hour is the quality of
output or amount of work which should be performed in one hour)
Production budget is prepared on the basis of
Sales Budget. The production capacity of the factory. The estimated changes in stock position. The inherent loss in production, if any. The policy governing the manufacturer or
purchase of components.
PRODUCTION BUDGET –
The budget represents the purchase to be made during the budget period. This will include direct and indirect materials and services.
The purchasing budget may be expressed in terms of quantity or money.
PURPOSE OF PURCHASE BUDGET
• To indicate cash requirements in respect of purchase to be made during budget period
• To enable the purchasing department to plan its operations in time in respect of purchase so that long term forward contract be arranged for
PURACHSE BUDGET
Example
One TV needs 3 picture tube
On 1st Dec following stock was in godown
TV – 100 Picture Tube – 600
Sales Position
NOV – 2000 DEC - 3000 JAN - 2500 FEB - 3500
MARCH – 4000 APRIL - 5000.
It is expected that 10% of TV , picture tube of next month requirement will be kept in stock from 31st Dec onwards.
Prepare Production and Purchase budget for DEC , JAN, FEB .
Particulars
Dec Jan Feb Mar April
Closing stock of finished products
250 350 400 500
(+) units to be sold
3000 2500 3500 4000 5000
(-) Opening stock of finished goods
100 250 350 400 500
Units to be produced
3150 2600 3550 4100 4500
PRODUCTION BUDGET FOR TV
Particular Dec Jan Feb March
Closing stock of raw material units
780 1065 1230
(+) Raw Material units required for production
(3150*3)=9450
(2600*3)=7800
(3500*3)=10650
(4100*3)=12300
(-) Opening stock of raw material unit
600 780 1065 1230
Units to be produced
9630 8085 10815
PURCHASE BUDGET FOR Picture Tube
PRODUCTION COST BUDGET
This budget is a forecast of the cost of production estimated in the Production Budget.
Example Period – April 2013Particulars Dep 1 Dep 2 Dep 3 TOTAL
Production as per Budget(Units)
250 300 600 1150
ELEMENTS OF COST
Direct Material 2 3 4 9
Direct Labour 5 4 1 10
Direct Expenses 9 7 5 21
Factory Overheads 4 3 2 9
PRODUCTION COST 20 17 12 49
PERSONNEL BUDGET-
This Budget will show in financial terms , the number of working hours or in other convenient units.
PURPOSE of PERSONNEL Budget
• Help in Labour Management.• It shows the planned outlay on direct and indirect wages .
Classification
No of workers
Hours Man-hours
Rate/hr Amount
1) Direct Labour
- - - -
Total TOTAL (1)
2) Indirect
Production - - - -
Admin. - - - -
Selling & Dist.
- - - -
R & D - - - -
TOTAL (2)
TOTAL(1+2)
PLANT UTILIZATION BUDGET
This Budget shows the estimated plant facilities required to meet the budgeted production as set out in production budget.
REPAIRS and MAINTENANCE BUDGET
This budget may be set in four parts –
Preventive , emergency , major and for cost related to Maintenance Budget
CAPITAL EXPENDITURE BUDGET
Planned for capital in monetary terms. It is prepared for long term.All the fixed assets are valued in monetary terms.
ZERO BASE BUDGETINGAlso Known as NIL-BUDGET
DEMAND DEPENDENT
Steps in ZBB
1) Identification of ‘DECISION UNITS’.
2) Ranking of all Decision Packages.
3) Allocation of the resources accordingly.
Advantages –
1) Careful planning.2) Involvement of lower and middle level management.3) Resources are allocated according to needs and benefits derived.