Budget and Budgeting Control in A Business Organization: Sanjith C

Budget and Budgeting Control in a Business
Organization
Submitted by
Sanjith C
Reg. No. BC0190041
Name of the Guide
Dr. T. S. AGILA, Ph.D.,

Assistant Professor of Commerce
TAMIL NADU NATIONAL LAW UNIVERSITY

(A State University established by Act No. 9 of 2012)
Tiruchirappalli
Tamil Nadu – 620 027
MAY – 2020
Dr. T. S. AGILA, Ph.D.
Assistant Professor of Commerce
Tamil Nadu National Law University
Tiruchirappalli
CERTIFICATE
This is to certify that the project work entitled “Budget and Budgeting
Control in a Business Organization” is a bonafide record of the research work
done by (Sanjith C), under my supervision and guidance. It has not been
submitted by any other University for the award of any degree, diploma,
associateship, fellowship or for any other similar recognition.
Place: Tiruchirappalli
Date:
Signature of the Guide

SANJITH C
Reg. No. BC0190041
II – B.Com., LLB., (Hons.)
Tamil Nadu National Law University
Tiruchirappalli
DECLARATION
I (Sanjith C), Register Number (BC0190041), hereby declare that this Research
Paper work entitled “Budget and Budgeting Control in a Business Organization”
has been originally carried out by me under the guidance and supervision vision
of (Dr. T. S. Agila, Ph.D.), Assistant professor of Commerce, Tamil Nadu
National Law University, Tiruchirappalli - 620 027. This work has not been
submitted either in whole or in part of any Degree/ Diploma at any University.
Place: Tiruchirappalli
Date:
Counter Signed Signature of the candidate

Project Guide
Budget and Budgeting Control in a Business Organization
ACKNOWLEDGEMENT
I take this opportunity at the onset to thank my professor (Dr. T. S.

Agila, Ph.D.) from the bottom of my heart who through moments of anxiety
and torpidity, was of enormous support when the project took its crucial form.
Furthermore, I extend my deepest regards to the Vice Chancellor, Mrs.
Elizabeth V.S. And TNNLU administrative staff who have kept the project in
high regard by providing accurate information in times of need in the form of
library infrastructure and database links.
Additionally, by foregoing their precious time, the contribution
rendered by my parents and friends is unforgettable and strongly solicited.
Their valuable advice and prompt oversight paved the way for this project's
successful completion.
Ultimately, I thank the Lord who during the making of this project, gave
me the strength and endurance to confront all obstacles. As I know 'Words are
Bad Comforters', words are not enough to recognise the enormous
contributions of different individuals involved in this project. Yet again, I
heartily and passionately thank all the individuals who were directly or
indirectly involved in developing this report that supported me step out with
great gusto.
Page 4
CONTENT
Title Page
1. Introduction 6
i. Objectives of the study 6
ii. Scope of the study 6
iii. Research Methodology 7
iv. Limitation 7
v. Review of Literature 7
2. Theoretical Data 8
i. Budget 8
ii. Budgeting 10
iii. Budgetary Control 16
3. Illustrations 19
i. Financial Budget 19
ii. Forecasting and Planning 21
iii. Flexible Budget 25
4. Conclusion 29
i. Findings and Suggestions 30
5. Bibliography 30
Page 5
INTRODUCTION
Every aspect of our lives – global, domestic, and business – requires a budget. A
budget is created to ensure that funds are used effectively and that goals are met as quickly
as possible. Budgeting is a commonly used method, and almost everyone uses it in some
way.
Budget is one of the most commonly used concepts in effective planning and control
methods.1 It is, without a doubt, used in large corporations, but it is often used informally
by small companies. In modern vernacular, a budget is defined as a plan for spending. A
budget is described as a detailed and coordinated financial plan for an enterprise's
operations and resources for a specific time period in the future.
“Of the management tools used by Chrysler Corporation, including computers,

PERT, Operations Research (OR), and system analysis, and so on, budgets are un doubly
the most important tool,” according to E. H. Graham of the Chrysler Corporation. Budgets
are often expressed in terms of dollars and kilograms. Budgeting approaches are critical
management accounting applications. Budgets are formed in both large corporations and
families. It's essentially a declaration of estimated income and cost over a certain set of
operating conditions.
OBJECTIVES OF THE STUDY
1. Research different aspects of budgeting and budgetary control.

2. To investigate the organization's profitability performance.
3. Investigate the organization's revenue sources and expenditures.
4. To compare and contrast actual and budgeted performance.
5. To make centralised control and delegation of authority and responsibility easier.
SCOPE OF THE STUDY:
1
Periasamy, P., 2010. A textbook of financial cost and management accounting. Himalaya, pg. 561.
Page 6
The study's reach is broad, encompassing everything from individual departmental

budgets to the organization's Master Budget and Performance Budget. The Master Budget
is a “summary of the budget schedules in capsule form prepared for the purpose of
presenting the highlights of the budget forecast in a single report.” The assessment of the
organization's success in the light of both particular and overall goals is included in the
performance budget. “The method of assessing, defining, simplifying, and crystallizing
basic performance goals of a job to be accomplished over a span in the frame work of the
organization objectives, the intent, and objectives of the job”. The strategy is distinguished
by its precise directions toward the organization's business objectives.
RESEARCH METHODOLOGY:
The research was carried out using the case study approach. The analysis was
completed using both primary and secondary data. Primary data was gathered through
interviews with employees in the organization's finance and accounting departments.
Secondary data was gathered from annual reports and other related documents. After that,
the information is processed and analysed with suitable analytical methods and techniques
in order to determine its effectiveness.
LIMITATION:
This comparative analysis has a limited time frame. Certain limitations could exist
in the proposed analysis. The constraints of time and money, for example, cannot be
overlooked. At the moment, the study's results can only be attributed to comparable
companies, not incomparable ones. Aside from that, budgeted sums estimated at one point
in time can be misleading due to short-term fluctuations.
REVIEW OF LITEATURE:
• Rao, M.T. and Thukaram, R.M., 2007. Accounting and financial management for
BCA & MCA. New Age International.
This book discusses at how understanding cost and revenue structures can help one
build predictions, strategies, and budgets. The preparation of budgets and their use in
operational control are addressed as key management accounting functions. The
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widespread use of budgets in the manufacturing, services, public, and voluntary sectors
is examined. This book delves into the fundamental principles and methods of
budgeting.
• Periasamy,P.,2010. A textbook of financial cost and management accounting.

Himalaya.
This book is written in a straightforward and easy-to-understand manner. We look at
the fundamental principles, methods, and strategies that are used to create budgets in
this book. We look at how budgets are used to keep an organization's activities under
control.
• Hansen, D.R., Mowen, M.M. and Heitger, D.L., 2021. Cost management. Cengage
Learning.
The different methods of budgeting are explored in this book, as well as how to create
conventional master budgets with functional-based accounting data. Flexible and
activity-based budgeting are also discussed, as well as behavioural dimensions of
budgeting and its application in management.
• Webster, W.H., 2004. Accounting for managers. The McGraw-Hill Companies.
In a concise and student-friendly context, this book offers in-depth, current coverage of
budget and budgeting control principles and procedures, while combining applicable,
real-world business illustrations and ethical concerns. It covers budgeting strategies
such as programme budgeting, performance budgeting, responsibility accounting, and
zero-based budgeting.
THEORETICAL DATA
BUDGET:
The word "budget" is thought to have come from the French word "baguette," which
means "little bag" or "container of documents and accounts." A budget may be thought of
as a "economic strategy" for a certain time span.
CONCEPT OF BUDGET
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Budget is a quantitative roadmap for action – a quantified plan for future operations.
A strategy relating to a financial and quantitative expression of a period of time is referred
to as this. Budget is described by the “Charted Institute of Management Accountants
(CIMA)” as "a plan expressed in money." Prior to the budget date, it is planned and
approved, and it can include revenue, capital expenditures, and incremental effects of
previously budgeted or actual figures. “A business budget is a pre-determined
comprehensive plan of action, created and circulated as a guide to current operations and
as a partial basis for subsequent performance evaluation”.2
The Essentials of a Budget are:
• The action plan's financial and quantitative statement.

• It is a planning tool as well as a foundation for performance assessment and
monitoring.
• It is defined prior to the budget cycle in which it will be implemented and is focused
on the rights policy.
ADMINISTRATION OF BUDGETS
Budgeting consumes a significant amount of management time. Since lower-

ranked managers have useful information of the everyday elements of business
management, top managers want them to participate in the budget process. Even a
participant. Increases lower-level managers' contribution to and accountability for the
budget. Budgets are widely used, indicating that the benefits of budgeting mechanisms
outweigh the costs. To reap the advantages of budgeting. The budget, as well as all facets
of the management control structure, should be understood and supported by management
at all levels of the organization.
Budgets should not be strictly enforced. Changes in circumstances normally
necessitate changes in plans. A manager can make a budget commitment, however
circumstances may arise in which certain unplanned repairs or an unplanned advertisement
campaign will be more beneficial to the company's interests. Managers should not put off
2
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advertising repairs in order to meet the budget – particularly if doing so would harm the
business in the long run. Budgeting should not be a goal in and of itself. 3
BUDGETING:
It is responsible for bringing authorized programmes into action as part of the long-term
strategy. It is the process of creating a budget. Budgeting is a method of business and
industry management.
BUDGET TYPES AND CATEGORIZATION:

Budgets are generally categorised according to their purpose. The types of
budgets that are widely used are mentioned below.
1. Categorization with regards to duration
❖ Long term Budget
❖ Short term Budget
❖ Current Budget
2. Categorization with regards to Functions
❖ Operating Budget
❖ Financial Budget
❖ Master Budget
3. Categorization with regards to Flexibility
❖ Fixed Budget
❖ Flexible Budget
1) CATEGORIZATION WITH REGARDS TO DURATION
▪ Long – term Budget: The budget is created to show the corporation's long-term
planning. Long-term budgets will last anywhere from five to ten years. Upper
management is in charge of long-term planning. For certain aspects of the company,
3
Yucel, R. and GÜNLÜK, M., 2007. Effects of budgetary control and justice perceptions on the
relationship between budgetary participation and performance. Journal of global strategic management,
1(2), pp.82-94.
Page 10
like as capital expenditures, research & innovation, and long-term financing, long-term
budgets are planned. Such budgets are effective with a relatively long time, such as
machines, power, and construction.
• Short-term Budget: This certain budget is usually 1 or 2 years in length and is written
in financial terms. Sugar, cotton, and other consumer products sectors make use of
short-term budgeting.
• Current Budget: The current budget cycle is usually measured in months and weeks.
These budgets are for the company's existing operations. “A current budget is a budget
that is defined for use over a limited amount of time and is linked to present
circumstances,” as per the Institute of Cost and Works Accounts in London.
2) CATEGORIZATION WITH REGARDS TO FUNCTIONS
a) Operating Budget: These budgets are related to a company's various activities or

operations. The amount of such budgets is determined by the company's size and
design. The following are some examples of operating budgets4:
✓ Sales Budget
✓ Production Budget
✓ Purchase Budget
✓ Labour Budget
✓ Manufacturing Expense
✓ Administration Budget
The Operating Budget for a company can be broken down into planning or
obligation zones, and thus includes:
▪ Programme Budget
▪ Responsibility Budget.
4
Manpreet Kaur, Accounting for managers.Excel Books Pvt. Ltd, pg. 186.
Page 11
Programme Budget: It comprises of projected sales and costs for different goods or
programs that are referred to it as the company's attributions, or something like a budget
for each product range or program that shows profits, costs, and relative profitability of the
different programs.5 Programme Budgets are therefore used in identifying grounds where
cost-cutting and revenue-generating measures can be needed. They can also be used to
identify programme disparities and deficiencies such that preventive steps can be made
throughout the meantime.
Responsibility Budget: The responsibility budget is created when a company's budget is

built around responsibility areas. As a result, the roadmap can be seen in consideration of
who is accountable for attaining organizational objective. It is used as a monitoring system
by management to measure the efficiency of managers taking responsible for different cost
centres. Their result is evaluated to the goals (budgets) that have been established for them,
and appropriate actions are taken if there are any negative outcomes. The scale and scope
of business operations, as well as the organisational structure, influence the types of areas
of responsibility. Nevertheless, there are three main categories of responsibility areas:
❖ Cost / Expense Centre
❖ Profit Centre
❖ Investment Centre
b) Financial Budget: Cash receipts and payments, cash flow expenditures, financial
condition, and company performance are all addressed in financial budgets. 6 The
following are some of the most widely used financial budgets:
▪ Cash Budget
▪ Working Capital Budget
▪ Capital Expenditure Budget
▪ Budgeted Balance Sheet
5
Id at 197
6
Hansen, D.R., Mowen, M.M. and Heitger, D.L., 2021. Cost management. Cengage Learning, pg. 338.
Page 12
c) Master Budget: The Master Budget incorporates a number of different functional

budgets. The Budget is created by combining several functional budgets into one.
“The Master Budget is the overview Budget containing its practical Budget,”
according to the Institute of Cost and Works Accounts in London. The Master
Budget is prepared by the Budget Officer and is held by upper executives. This
budget serves as a management mechanism as well as a means of coordinating the
activities of different functional departments.
3) CATEGORIZATION WITH REGARDS TO FLEXIBILITY
▪ Fixed Budget: Fixed budget is created for a specific activity level and is created
prior to the start of the fiscal year. 7 If the fiscal year begins in January, the budget
would be prepared in November or December, a month or two earlier. The Budget
would not be updated to account for adjustments in spending as a result of the
necessary modifications. There is a twelve-month gap between the budgeted and
real estimates. “A fixed budget is a budget that is intended to stay intact regardless
of the degree of operation actually attained,” as per the Institute of Cost and Works
Accounts in London. Fixed budgets are appropriate in fixed situations. If This
budget will be beneficially used whenever revenue expenses and costs can be
anticipated with better precision.
▪ Flexible Budget: A flexible budget is made up of a set of budgets of varying levels

of operation. As a result, it changes based on the level of operation achieved. A
flexible budget is created with considering unexpected shifts in the business
environment. A flexible budget is one that is intended to adjust in proportion to the
perceived of operation by considering the differences among fixed, semi-fixed, and
variable costs. Flexible budgets can be helpful at which degree of operation varies
over time. This Budget would be more appropriate when demand forecasting is
unpredictable and the endeavor is experiencing a shortage of supplies, manpower,
or other resources.8
7
Webster, W.H., 2004. Accounting for managers. The McGraw-Hill Companies, pg. 143.
8
Page 13
ZERO BASED BUDGETING

Prior to actually planning a Budget, a base is established from which the Budget
process starts in Zero Base Budgeting methods. 9 Frequently, the present year's budget is
used as the foundation or guiding principle for planning the following year's budget. The
numbers in the foundation are paid according to the budget for the following year. Because
the Budgetary control is primarily concerned with the rises or adjustments in expenditures
that are expected to take place over the Budget period, this method of budget preparation
is known as "Incremental Budgeting." For instance, the next year's sales budget would be
the existing year's sales plus a price hike provision and anticipated adjustments in overall
sales.
The biggest disadvantage to this strategy is that it continues to perpetuate
deficiencies from the precedent. Incremental budgeting can be replaced with Zero Base
Budgeting. It was created by Peter Phyrr, the founder of Zero Base Budgeting, at Texas
Instruments 10 in the United States in 1969. It's a management tool that's slowly gaining
traction in the corporate world. Zero Base Budgeting is not centered on an incremental
strategy, and valuable estimates are not used as the foundation for planning the budget for
the following year. Rather, the budget estimates are created with zero as the starting point,
implying that the budget would be planned as though it were for the first looking for a fresh
business.
Plan proposals for allocation are approved on the grounds of a cost/benefit strategy
in Zero Base budgeting, that guarantees value for money. If you challenge long-held beliefs
and systematically evaluate and possibly drop any ineffective tasks, you'll be a better
person. This implies that expenditures that are of little importance are not included in the
upcoming Budget, although they were included in the previous budget planned using the
conventional method. In this manner, zero-based budgeting seeks to identify non-essential
tasks.
9
Drury, C.M., 2013. Management and cost accounting. Springer, pg. 389.
10
Id at 391.
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Page 15
BUDGETARY CONTROL
When referring to a management control system, the words budgetary control and
budgeting are frequently used interchangeably. The term "budgetary control" refers to the
use of a comprehensive budgeting method to assist management in performing functions
such as planning, coordination, and control. “Budgetary Control,” as the I.C.M.A., London,
says, “is the creation of a budget relating to the executive duties of a policy and the
continuous comparison of real with budgeted performance, either to secure by individual
intervention the objection of policy or to provide a basis for its revision.” 11
“Budgetary Control,” according to Brown and Howard, “is a method of cost control
that involves the planning of budgets, coordinating debts and establishing obligations,
11
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comparing real output to the Plan, and acting on the results to achieve optimum
profitability.”
Budgetary Control Characteristics: The following are the key characteristics:
• Budgets for each role or department of the company are created.
• Continuous comparison of real results to budgeted performance.
• Analysis of differences between real and budgeted results to determine the reasons
for the differences.
Co-Ordinal Features: The following are the three co-ordinal characteristics of a

"Budgetary Control":
➢ Planning
➢ Co-ordination
➢ Control
According to Rowland and William, "budgetary control encompasses everything and also
involves sciences of budget preparation to effects an overall management method for
business planning and control."
Budgeting Control Objective:
Budgetary control aids control and strengthens planning and coordination. The
following are the reasons for budgeting:
1) To assist with the annual operation planning.
2) To coordinate the activities of different sections and to ensure that the company operates
in a harmonious manner.
3) To inform the various accountability center managers of the plans.
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4) To encourage managers to work against the organization's objectives.
5) To keep track of what's going on.
6) To assess the managers' results.
Characteristics of an effective budgeting system
1) The budgeting process must be assisted and endorsed by the organization's CEO. 12
2) The organization's mission should be defined and clearly indicated. These
objectives should be set within the structure of a organization's realistic goals.13
3) Authority and responsibility should be properly fixed and delegated.
4) Individuals responsible for budget implementation should be involved in budget
planning.
5) Data, coordination, and involvement ought to be the foundations of the budgeting
method.
Advantages of Budgetary Control

• The Budget programme requires administrators to prepare ahead of time.
• Needs early evaluation of fundamental policies.
• The budget committee includes all representatives of top management. As a result,
even departmental preparation benefits from the expertise of experienced
executives.14
• Management is compelled to record what constitutes acceptable results in cold
numbers.
• Benefit maximization is the goal of budgeting management, which is achieved by
adequate planning and control.
12
Rao, M.T. and Thukaram, R.M., 2007. Accounting and financial management for BCA & MCA. New
Age International, pg. 532
13
14
Age International, pg. 532
Page 18
• By adequate planning and monitoring, it guides capital investment toward benefit

maximization.15
• It allocates capital spending in the most productive way possible.
Limitations of Budgeting
➢ Budgeting is not a replacement for management; rather, it is a tool for

management16.
➢ A budget plan should be flexible and adapt to changing market circumstances on a

regular basis. Budgets would lose a great deal of their utility if they become too
static and aren't adjusted to changing conditions.
➢ Budgeting is a time-consuming process. The implementation and maintenance of a

budgetary control system is expensive because it necessitates the hiring of skilled
personnel as well as other expenses that a small business will be unable to afford.
➢ The use of budgets can result in resource constraints. Budgets are often seen as
boundaries. As a result, although it is physically feasible, efforts must not be taken
to surpass results outside budgeted goals..
ILLUSTRATIONS
FINANCIAL BUDGET:
The budgets for the next quarter are being prepared by Ashok Ltd. The following data
was derived from the budgets generated so far during the planning process.
15
16
Age International, pg. 533.
Page 19
Sales value March (estimate) ₹13,000

April (budget) ₹14,000
May ₹16,000
June ₹15,600
Direct wages ₹1,400 per month
Direct material March (estimate) ₹3,550

purchases
April (budget) ₹3,880
May ₹2,990
June ₹3,250
10% of Ashok's inventory is sold for cash. The remaining customers will be given a one-
month credit.
Creditors are paid in the month following the purchase.
Wages are paid in the order in which they are incurred.
On all overheads, Ashok takes a month's credit.
Monthly production overheads are ₹3,300.
Monthly overheads for selling, distribution, and administration total ₹1,990. Depreciation
charges of ₹200 and ₹90 are included in the above-mentioned overhead rates.
In August, Ashok plans to purchase a delivery vehicle for ₹9,700 in cash. The cash balance
is expected to be ₹1350 at the end of March.
Make a cash budget for the months of March through June.
SOLUTION:
Ashok Ltd cash budget for April to June
April ₹ May ₹ June ₹
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Sales receipt
10% in cash 1,400 1,600 1,560
90% in one month 11,700 12,600 14,400
Total receipts 13,100 14,200 15,960
Payments
Material purchases 3,550 3,880 2,990

(one-month credit)
Direct wages 1,400 1,400 1,400
Production 3,100 3,100 3,100

overheads
Selling, distribution 1,900 1,900 1,900

and administration
overhead
Delivery vehicle Nil 9,700 Nil
Total payments 9,950 19,980 9,390
Net cash inflow/ 3,150 (5,780) 6,570

(outflow)
Opening cash 1,350 4,500 (1,280)

balance
Closing cash 4,500 (1,280) 5,290

balance at the end of
the month
FORECASTING AND PLANNING:
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Budgets are normally built around a collection of projections as they are being
prepared. The budget manager wants to know how much various goods will sell, how much
labour will cost, how much material would cost, etc. Since it is not necessarily possible to
predict these statistics with total conviction, forecast strategies can be used. 17
One such methodology is time series analysis. A time series is a set of data that changes
over time. A time series may show a pattern or relationship when plotted on a graph.
Various degrees of numerical complexity may be used in such exercises. The most basic
‘linear regression' exercise is as follows:
1st Illustration
Month Units produced Costs ₹

1 200 2,400
2 300 3,100
We must estimate costs for the third month, when 240 units are expected to be generated.
Upon this presumption that cost components are either fixed or completely variable, a
model for cost behaviour can be constructed using the equation “y = a + bx”, where “y”
represents monthly costs, “a” represents monthly fixed costs, “b” represents variable cost
per unit, and “x” represents production. As “x” increases by 100, “y” increases by 700, so
“b” must equal 7 and “a” must equal 1000.
As a result, the variable cost per unit “b” is ₹7 and the fixed monthly costs “a” are ₹1000.
Thus, if month 3's projected production “x” is 240 units, month 3's costs are expected to
be ₹2,680 (i.e., ₹1000 fixed costs plus (₹7 X 240 units) variable costs).
2nd Illustration
The Unit is a commodity that is available for purchase. The following table shows the real
monthly and cumulative Unit sales from month one to month nine.
17
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1st Figure Cumulative sales of Units
It is expected to create a forecast for Units sales in month ten.

An examination of these statistics reveals a 'trend.' Monthly unit sales are falling, but not
at the same pace (such as sales being 150 units lower each month than the previous
month). The drop from month one to month two is 420 units, while the drop from month
eight to month nine is just 140 units.
As shown in 1st Figure, the figures can be interpreted graphically.
While there is a pattern, the curve isn't really flat. There are certainly a variety of
uncontrollable factors affecting sales, such as the rainfall, that is broadcast on news, or
political conditions.
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The development of a statistical model to link time and Unit sales is one approach to
creating a forecast for month 10 Unit sales. To connect the two, you'll need to create an
algebraic equation. Regression analysis is a statistical method for accomplishing this.
The widespread use of personal computers has had an effect on how this approach is used.
A curve represents the relationship between time and accumulated sales. The equation
represents the simplest algebraic shape of a curve:
y= Ax n
As seen below, the statistics can be entered into a software spreadsheet. In the left hand
column, the months are reached. The equation is written in all of the cells in the centre
column, with x equal to the value of the month's figure. The numbers inserted in a reference
cell underneath the main tabulation is related to the value of n in all of the cells.
The value of n can then be modified to perform a sequence of simulations. It's easy to
figure out that 0.6 produces a "axis of closest match." The following is the tabulation that
results:
1 These statistics aren't exactly the same as the ones above, but they're pretty similar.
They observe the general pattern, but they don't account for the unpredictable events
that trigger small variations in the pattern.
2 2nd figure depicts these "numerically constructed" statistics graphically. If the
following relationship exists between total months (x) and total unit sales:
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y = 1,000X0.6
2nd Figure Numerically Constructed Cumulative Sales of Units
As a result, if x equals 10, then y (total sales from month 1 to month 10) equals 3,981 and
projected month 10 sales equals 244 Units. This forecast is uncertain to be accurate, but
then again, no forecast has ever been ideal.
FLEXIBLE BUDGET:
For the first two quarters of year 3, Ashok Ltd used a flexible budgeting scheme, and the
flexed budgets for expenditure were as follows:
Flexed budgets – quarters 1 and 2
Quarter 1 Quarter 2
Units Units
Sales 10,000 15,000
Production 11,000 14,000
₹ ₹
Budget cost allowances
Direct materials 132,000 168,000
Production labor 75,000 81,000
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Production overhead 90,000 111,000

Administration 25,000 25,000
overhead
Selling and distribution 30,000 37,000
overhead
Total budget cost 352,000 422,000
allowance
Regardless, an anticipated rise in activities, the cost structures from quarters 1 and 2 are
assumed to be maintained in quarter 3:
(a) In direct proportion to volume, the variable cost elements act in a linear fashion. Even
so, when the production volume exceeds 15,000 units, the unit variable cost of
production labour rises by 50%. This is due to a provision for overtime work, and the
additional fee is only payable on output of more than 15,000 units.
(b) Changes in activity levels have no effect on the fixed cost components.
(c) The variable component of production costs are proportional to the amount of
production.
(d) The variable component of selling and distribution overhead is proportional to the
amount of sales.
Make a statement for the third quarter's budget expense allowances. During the third
quarter, activity levels were as follows:
Units
Sales 15,500
Production 16,000
SOLUTION:
When each cost figure is divided by the relevant operation figure, the only wholly
variable cost is direct material, which costs ₹12 per unit.
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It can also be noticed that the only wholly fixed cost is administration overhead as this
is a fixed amount for both of the activity levels, ₹25,000.
To calculate the fixed and variable elements for the remaining costs, we’ll need to use
the high–low method.
PRODUCTION LABOR
Production Units ₹
Quarter 2 14,000 81,000
Quarter 1 11,000 75,000
Change 3,000 6,000
Variable cost= ₹ 6,000/3,000 = ₹2 per unit
Fixed cost=. ₹81,000-(₹2 X 14,000) = ₹53,000
PRODUCTION OVERHEAD
Production Units ₹
Quarter 2 14,000 111,000
Quarter 1 11,000 90,000
Change 3,000 21,000
Variable cost= ₹21,000/3,000= ₹7 per unit
Fixed cost= ₹111,000-(₹7 X 14,000) = ₹13,000
SELLING AND DISTRIBUTION OVERHEAD
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Sales Units ₹
Quarter 2 15,000 37,000
Quarter 1 10,000 30,000
Change 5,000 7,000
Variable cost=₹7,000/5,000= ₹1.40 per unit
Fixed cost=₹37,000- (₹1.40 X 15,000)= ₹ 16,000
For Quarter 3, we may now make a statement of the expenditure expense allowances.
₹ Quarter 3 Budget Cost

Allowance ₹
Direct Material (16,000 units X 192,000

₹12)
Production Labor
Fixed 53,000
Variable up to 15,000 units (15,000 30,000

X ₹2)
Variable above 15,000 units (1,000 3,000

X ₹3)
86,000
Production overhead:
Fixed 13,000
Variable (16,000 X ₹7) 112,000
Page 28
125,000
Administration overhead: Fixed 25,000
Selling and distribution overhead:
Fixed 16,000
Variable (15,500 X ₹1.40) 21,700
37,700
Total Budget Allowance 465,700
CONCLUSION
➢ Finally, I'd like to summarise the budget and budgetary control process, as well as
how each manager can use the budgetary planning and control system to set realistic
goals for improving the business's operating efficiency and profitability.
➢ This is often referred to as "management by goals," but it is also known as
"management for realistic results." A successful budgeting framework is a two-
sided affair that includes a structured planning process that leads to an overall target
and departmental goals within that goal.
➢ Control reports and procedures that lead management to ensure that certain goals
are met. Budgeting is essentially an expanded version management process of
planning, execution, and control, as mentioned at the outset. The importance of
broad involvement at all levels of management in the budgetary preparation and
control process was also emphasized.
➢ It ought to be obvious that this has the impact on a management's ability to perform
basic management tasks at all levels. It is further clear that good budgeting is more
than a financial exercise, and that the position of the budget manager & accounting
staff is primarily one of administrative and coordinate direction, accompanied with
the fairly routine work of converting process decides outcomes into monetary terms.
Page 29
FINDINGS AND SUGGESTIONS
➢ For proper budget planning and control, input from all divisions of the company is
needed.
➢ There is a pressing need to develop and enforce a cost-cutting strategy.
➢ It is vital to provide a budget manual in order to let anyone at an organizatica refer
to it for budgetary feedback & details.
➢ The differences resulting from each factor must be properly separated and recorded
to management.
➢ There is a material acquisition under way with implications for profitability that
must be proven in depth.
➢ Unmanageable variations are outside the organization's influence. Controllable
deviations must be identified as soon as possible so that liability can be established
and action taken against those liable.
➢ In the case of travel expenses, as well as motor vehicle inspection & replacements,
& minor works, the budgetary process has proven to be successful.
➢ The budgeting method has proven to be successful in reducing travel costs.
BIBLIOGRAPHY
Primary Sources
Page 30
• Rao, M.T. and Thukaram, R.M., 2007. Accounting and financial

management for BCA & MCA. New Age International.
• Periasamy, P., 2010. A textbook of financial cost and management
accounting. Himalaya.
• Hansen, D.R., Mowen, M.M. and Heitger, D.L., 2021. Cost
management. Cengage Learning.
• Webster, W.H., 2004. Accounting for managers. The McGraw-Hill
Companies.
Secondary Sources
• Drury, C.M., 2013. Management and cost accounting. Springer.

• Scarlett, R., 2005. Management accounting-performance evaluation.
Elsevier.
• Yucel, R. and GÜNLÜK, M., 2007. Effects of budgetary control and
justice perceptions on the relationship between budgetary
participation and performance. Journal of global strategic
management, 1(2), pp.82-94.
• Manpreet Kaur, Accounting for managers. Lovely Professional
University. Excel Books Pvt. Ltd.
Web Sources
• https://www.businessmanagementide
as.com/management/budgetary-
control-management/budget-and-
budgetary-control-
management/10474
• https://www.economicsdiscussion.net
/cost-accounting/objectives-of-
budgetary-
control/31915#:~:text=ADVERTISE
MENTS%3A&text=Budgetary%20c
ontrol%20is%20a%20system,results
Page 31
%20to%20achieve%20maximum%2
0profitability.
• https://smallbusiness.chron.com/uses
-budgetary-control-31142.html
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Budget and Budgeting Control in a Business

Reg. No. BC0190041

Name of the Guide

Dr. T. S. AGILA, Ph.D.,

TAMIL NADU NATIONAL LAW UNIVERSITY

Signature of the Guide

Counter Signed Signature of the candidate

I take this opportunity at the onset to thank my professor (Dr. T. S.

“Of the management tools used by Chrysler Corporation, including computers,

OBJECTIVES OF THE STUDY

1. Research different aspects of budgeting and budgetary control.

SCOPE OF THE STUDY:

The study's reach is broad, encompassing everything from individual departmental

• Periasamy,P.,2010. A textbook of financial cost and management accounting.

• Webster, W.H., 2004. Accounting for managers. The McGraw-Hill Companies.

The Essentials of a Budget are:

• The action plan's financial and quantitative statement.

Budgeting consumes a significant amount of management time. Since lower-

BUDGET TYPES AND CATEGORIZATION:

1) CATEGORIZATION WITH REGARDS TO DURATION

2) CATEGORIZATION WITH REGARDS TO FUNCTIONS

a) Operating Budget: These budgets are related to a company's various activities or

Responsibility Budget: The responsibility budget is created when a company's budget is

c) Master Budget: The Master Budget incorporates a number of different functional

3) CATEGORIZATION WITH REGARDS TO FLEXIBILITY

▪ Flexible Budget: A flexible budget is made up of a set of budgets of varying levels

ZERO BASED BUDGETING

Budgetary Control Characteristics: The following are the key characteristics:

• Budgets for each role or department of the company are created.

• Continuous comparison of real results to budgeted performance.

Co-Ordinal Features: The following are the three co-ordinal characteristics of a

Budgeting Control Objective:

1) To assist with the annual operation planning.

3) To inform the various accountability center managers of the plans.

4) To encourage managers to work against the organization's objectives.

5) To keep track of what's going on.

6) To assess the managers' results.

Characteristics of an effective budgeting system

Advantages of Budgetary Control

• By adequate planning and monitoring, it guides capital investment toward benefit

➢ Budgeting is not a replacement for management; rather, it is a tool for

➢ A budget plan should be flexible and adapt to changing market circumstances on a

➢ Budgeting is a time-consuming process. The implementation and maintenance of a

Sales value March (estimate) ₹13,000

Direct wages ₹1,400 per month

Direct material March (estimate) ₹3,550

Ashok Ltd cash budget for April to June

April ₹ May ₹ June ₹

10% in cash 1,400 1,600 1,560

90% in one month 11,700 12,600 14,400

Total receipts 13,100 14,200 15,960

Material purchases 3,550 3,880 2,990

Direct wages 1,400 1,400 1,400

Production 3,100 3,100 3,100

Selling, distribution 1,900 1,900 1,900

Delivery vehicle Nil 9,700 Nil

Total payments 9,950 19,980 9,390

Net cash inflow/ 3,150 (5,780) 6,570

Opening cash 1,350 4,500 (1,280)