(Accountacy)
(Accountacy)
(Accountacy)
PAPER CODE:2804/307A
I declare that this trade project is my original work neither has it been written by other
person or submitted for any award.
No part of this trade project is penetrated by any means of its photocopying, duplicating
or any other means without my knowledge as the author.
This trade project, I dedicated it to my parent, my true friends and my teacher MR.
SHADRACK KOECH who supported and assisted me throughout the complications of
this trade project.
I thank you all, may our almighty father bless you abundantly.
i
DEDICATION
With gratitude and respect I dedicate this project to my family, friends for the support and
love during my training at Rift Valley Institute
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ACKNOWLEGEMENT
My foremost thanks goes To Almighty Father who is above for the gift of life and good
health he has given me while I was in the process of writhing and compiling this trade
project.
Much applications and my sincere gratitude goes to my parents, my brothers and sister for
their support throughout my studies.
I won’t forget my supervisor MR. KOECH SHADRACK for his kindness and tireless
efforts to see I achieve my goals.
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Contents
DECLARATION...................................................................................................................i
DEDICATION.....................................................................................................................ii
ACKNOWLEGEMENT.....................................................................................................iii
ABSTRACT.......................................................................................................................vii
CHAPTER ONE...................................................................................................................1
1.0 INTRODUCTION....................................................................................................1
1.7.1 Budget..................................................................................................................3
CHAPTER TWO..................................................................................................................4
2.1 Introduction................................................................................................................4
CHAPTER THREE............................................................................................................13
3.1 Introduction..............................................................................................................13
3.3.1 Population..........................................................................................................13
CHAPTER FOUR..............................................................................................................17
4.1 Introduction..............................................................................................................17
CHAPTER FIVE................................................................................................................23
5.1 Introduction..............................................................................................................23
5.4 Conclusion................................................................................................................28
5.5 Recommendations....................................................................................................29
REFERENCES...................................................................................................................30
APPENDICES....................................................................................................................38
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ABSTRACT
Budget is part of managerial accounting in this process organizations decide their budget
for future goals and development. Through this process, the organization will be prepared
an effective budget for the business. According to the selective article, Companies is to
higher institutions (Central Management Company and Service Management Company)
to make a budget in this article, organizations use different approaches for their prepared
their budgeting. The main purpose of the budget is to develop the business and decreased
the level of miss-use resources and expenses. According to the literature review, most of
the organization fail in their budget process. Because who uses incomplete information
for the budgeting process. Most of the organization can't use effective technology in their
business, so that's why who face problem in the evaluation process. Development
companies use high-level technology for their budgeting process, because through
technology systems who collect accurate information which is must be needed for the
budgeting process and easily control their business performance and analysis the result if
the results not good so who will make the change immediately in their budgeting process
with the help of technology. The top-down approach uses to top management to make a
budget and in bottom-up approach authorities divide in the down level and who make
their budget for their department. In the selective article, organizations use the traditional
budgeting process due to the inflation rate, government policy, customer demand, and
wants. As I recommended the traditional budgeting process is best for business because as
I mentioned COVID 19 problem is a highly effective business and world economy. With
the help of the traditional budgeting, process organization will make changes in their
budget due to any crisis or problem.
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CHAPTER ONE
1.0 INTRODUCTION
1.1 Background of the study
Budgeting is the process of designing, implementing and operating budgets.(Edward
2004) the types of budgets include, balanced budget, surplus budget and deficit budget.
Balanced budget is said to be balanced when its estimated revenues and anticipated
expenditure are equal.it implies that the government raises funds in means of taxes and
other means. A balanced budget was considered an effective check on extra vacant
expenditure of the government. Surplus budget is when government expenditure are more
than the estimated government expenditure. It is used either to reduce government public
debt or increase its savings. Deficit budget is when government estimated receipts are less
than government expenditure.
1
1.2 Statement of the problem
The listed companies contribute significantly to the economy of the world because of the
large investments. A budget is a tool which is utilized by the government of Kenya with
the aim of archiving both operational and development activities in the short and long
term especially in the bid to achieve the vision 2030 economic, social and political pillars
as a strategic objectives. Budgeting as a tool in financial management regularly prepares
performance plans and budgets requests that describes performance goals, measures of
output and outcomes in various activities aimed in archiving performance goals. This
helps in sense in annual plans set forth in measurable terms form the level of performance
for each objective in the budget period (Larson, 1999).
A standard budget implementation process should ensure that the intended government
programs are achieved in the most efficient, transparent and fair manner according to
shard & david(2010). Government budgets are either be classified as surplus exceeds
expenditure, deficit budget when expenditure and revenue are equal as enunciated by
(Smith et al,2004).
2
1.5.1 Cement Manufacturing Firms
This study is expected to enable the identification of budgetary control methods that are
essential to the general performance and decision-making in cement Industry as a
Multinational corporation.
The limitation of this study is that some respondents may not be willing to give out
information regarding the firm under study. The researcher assured respondents that
information sought would be treated with utmost confidentiality and for academic
purposes only.
3
1.7.2 Budgetary reporting
The financial status, income and expense data can change on a daily basis for a company.
Financial data is documented and recorded in a budget report, also often referred to as a
financial report. While a budget report can be a detailed documentation, the business
owner can also choose to make it brief and simple. This decision is often affected by the
overall use and readership of the report. Budgetary reporting is the process of establishing
budgets related to various activities and comparing the budgeted figures with the actual
performance for arriving at deviations, if any (Robinson, 2009).
4
CHAPTER TWO
Although his needs were very small compared to the modern man’s, the early man could
not get all that he needed to achieve utmost satisfaction. He preserved considerable
amount of fruit he plucked during glut period to avoid starvation during periods of dry
spell. He would also preserve excess bush meat because he was not sure of killing
animals daily. Despite all the aforementioned measures to mitigate uncertainties
associated with the future, the early man’s budgeting style was considered primitive
(Siyanbola, 2013).
According to Adeyele (2016), modern day budgeting started during the Roman and
Egyptian civilization periods around 500BC and 2500BC respectively. Merchants
matched expected expenditure against expected income to be able to establish whether
their businesses were making profit or loss. Siyanbola (2013) argue that formal
preparation of budgets can be traced to the middle age period in England when the
Chancellor of the Exchequer prepared annual accounts in a scroll, usually kept in a bag to
5
be read in parliament. During time of discussing state finances, the Chancellor could
always refer to the statement of accounts contained in the bag. This bag, whose original
name is (boguette) in French, is referred to as the budget. Over the years, governments’
financial statements have taken over the name of the bag, thus the statement of finance for
any government today is referred to as the budget.
History has it that the first annual national budget was adopted in Britain in 1787. The
British parliament passed the Consolidated Fund Act, paving way for a single general
fund for recording all receipts and expenditure, which formed the basis for the modern
budgeting system. By 1822, the British Chancellor for the Exchequer, an equivalent of
Finance Minister in other commonwealth jurisdictions, had gotten used to the presenting
annual budget statements to the British Parliament account committee for review. The
Audit Act, which existed then, provided independent post audit review of the said budget.
Elsewhere in other developed countries jurisdictions, the United States of America
adopted this system in 1912, the same year the budget and accounting Act was set up by
the federal budget system. By 1931, the French government had adopted the system
(Barclay, Schalkwyk and Pauw, 2011).
6
year strategic plans, which are usually broken into annual budgets that are rolled over
from one year to the other.
Therefore, culture, management style and managers’ attitude towards firm employees will
influence the budgeting approach within an organization (Polisetty, 2016).
There are three commonly used approaches to development of final budgets. The first one
is the imposed or top-down budget approach whereby top management decides on the
budget and lower level managers implement it as it is. The advantage synonymous with
this approach is reduced decision-making time. The second approach is referred to as the
participative or bottom-up approach. This approach takes into consideration the input of
the lower cadre managers. The third approach is the negotiated budget, which adopts both
the imposed and participative styles of budgeting thus creating an environment whereby
budget preparation is a shared responsibility (Raghunandan, Ramgulam and
RaghunandanMohammed, 2012).
The budgeting style chosen by a firm would depend on nature and leadership style
applicable in the firm. It is widely argued that budgets developed using the participative
or negotiated approaches attract greater support from firm’s employees and managers
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(Kyei, Kwaning and Francis, 2015). Mere consultation with employees or managers prior
to setting budgetary goals is not participation. Schemes that do not offer real participation
in the budgeting process are highly discouraged. Budgeting process should cultivate a
culture of positive game spirit in every aspect namely target setting, system design,
variance analysis and corrective action (Chong and Chong, 2002).
According to Chong and Chong (2002) the effect of participation is dependent upon
organizational culture, personality and history. Thus, the efficacy of any management
control system depends on the positive relationship between that system and the firm’s
interest. McGregor characterizes management styles into two theories; X and Y. Theory
X argues that employees in an organization are mainly motivated by money and cannot
meaningfully contribute to the firm’s decision-making process. Theory Y on the other
hand argues that job security and the prospect of promotion motivates an employee in a
work place. Although these theories may yield positive results, they may impede
workers’ personal development. For instance, employees who are not committed to the
success of the budgeting process may seek ways of circumventing the process
(Wilkinson, 2009).
According to the organization theory, two theories are used towards the attainment of a
firm’s goals namely: classical theory and human relations approach. The former is
concerned about organizational structure and tasks that should be accomplished to
achieve firm objectives. The latter focuses more on people, their motives and behavior
and not structures and activities, which must be harnessed to achieve organizational goals.
This theory emphasizes on the importance of individual needs, therefore organizational
structure should be geared towards individuals, and not the other way round (Edwards,
2013).
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The three main approaches employed by firms in developing budgets include; Firstly,
imposed or top-down budgeting approach. This approach is supportive of the oppressive
or autocratic style of leadership where top management decides on the budget and lower
level management is only responsible for the execution. Secondly, participative or
bottom-up budgeting process. This budgeting approach is supportive of the democratic
style of leadership where lower level management input is given recognition in the
budgeting process. Lastly, negotiated budgeting approach. This type of budgeting
approach adopts not only the imposed budgeting approach, but also the participative
styles of budgeting and creates an environment where there is shared responsibility for
budget preparation (Kim and Park, 2006). It is widely believed that participative
budgeting approach elicits greater employee support in most organization compared with
autocratic budgeting process.
9
According to Patel (2015), caution should be observed when responding to behavioral
responses based on the participation chemistry. Some managers may inflate their
departmental estimates when competing for the scarce resources. The firm should
therefore carry out cost benefit analysis aimed at achieving effective and efficient
resource allocation across departments. The Hawthorne experiment of the 1920s revealed
that human and social factors in a work environment affect productivity than physical
factors. These theories revealed that people at a work place, care about their work and are
motivated by other factors and not necessarily by money (Levitt and List, 2011).
Financial performance can be measured using three indicators namely; internal based
performance measures such as Return on Assets (ROA) and Return on Investments
(ROI), market-based performance measures such as Tobin’s Q model computed as
Price/Equity’s Book Value, sales and market share and lastly, shareholders return
10
measured in terms of total shareholder return or economic value added. For purposes of
this study, Return on Assets (ROA) will be used as a measure of performance. Reason
being, ROA is a better measure of a firm’s financial performance since it gives a clear
picture of the extent by which a firm utilizes its assets to make profit as opposed to
simply showing healthy return on sales (Akeem, Terer, Kinyanjui and Kayode, 2014).
The other ratio to be used is the Gross Profit Margin.
Steps involved in the control process include setting organizational goal, recording actual
activity performance, creating a mechanism of comparison between set goals and actual
performance and extracting variance between set target and actual activity. Other steps
include investigating the causes of the aforementioned variances and taking appropriate
action regarding the said variance (Igbinosun and Ohiokha, 2012).
Control ensures that objectives as laid down in the budgets are achieved. Management is
able to know about this through information availed to it by subordinates. Control ensures
that objectives are achieved. A comparison is therefore made between plans and actual
performance; the difference between the two is reported to management for taking
corrective action. This control process is not possible without planning. An effective
control system helps accomplish the purpose for which it is designed. Effective control
systems rely on good information that is well communicated, well-coordinated, timely
and economical to the organization (Bento and Bento, 2006).
Budgetary control demands that each manager of a cost center is responsible for the
expenses of that cost unit. According to Robinson (2009), budgetary control is defined as
a policy established by firm’s executive for comparison purposes between actual and
budgeted results associated with attainment of a particular objective. Hence, emphasis is
placed on control achieved through comparison of the actual results against budgeted
plans.
Abdullahi et al., (2015) contend that budgetary control is a process that compares actual
results with set targets and reports any variation arising therein called variance.
12
According to Robinson (2009), this sets a control mechanism within which expenditure
can be kept within reasonable limits, deviations noted and appropriate corrective action
taken on time.
13
CHAPTER THREE
This study was designed as a case study of the East African Portland Cement Company
using the survey method. According to Odoh and Chinedum (2014), a case study is
described as analysis of a firm, assuming that the researcher can acquire knowledge
regarding the subject under review from in-depth exploration of a single case. It is a
qualitative analysis that involves careful observation of a situation.
14
comprised of employees of East African Portland Cement Company in the finance
department targeting 45 employees. Odoh and Chinedum (2014), describe target
population of a study as the point of focus from which a generalization is made regarding
the research findings.
At 95% confidence interval and a population of 45 the sample size was calculated as:
15
n= 45
1+45(0.05)2
= 45
1+0.1125
= 45
1.1125
Sample size = 40
Thus, a sample size of 40 employees is considered representative of the total population.
According to this study, both primary and secondary data was used. Structured closed
ended questionnaires were used to collect primary data. The questionnaire was divided
into three sections. Section I of the questionnaire captured respondents’ demographics;
Section
Secondary data was used to establish the level of financial performance at East African
Portland Cement Company. Turnover was used as a measure of budgetary control
16
whereas profit before tax, profit after tax and earnings per share were used as proxies for
measurement of financial performance for the period 2012-2016.
3.5 Research Procedures
The questionnaire was pre-tested on 10 respondents to establish its validity and if need be,
necessary adjustments made. After piloting, the revised questionnaire was emailed to all
respondents. The respondents were given one week to feel the questionnaire. On
collection of the filled questionnaires, the researcher reviewed all the questionnaires to
ensure that all copies issued to the respondents were filled are returned. The returned
questionnaires were coded and run through the Statistical Package for Social Sciences
(SPSS) for analysis.
Regarding the secondary data used in the study, the researcher tested the relationship
between budgetary control and firm performance using financial information of a similar
unlisted firm. The researcher then sought permission from the university’s research office
to carry out a study on the firm. The researcher sought secondary data from the firm’s
audited accounts in the Nairobi Securities Exchange handbooks. Finally, the researcher
analyzed data on the East African Portland Cement Company performance.
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CHAPTER FOUR
18
Male 25 71.42%
Female 10 28.58%
Total 35 100%
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4.2.4 Years of Experience
The study sought to examine the respondents work experience in terms of years spent in
the industry. Fifty one percent of the respondents had worked for a duration of between 7
to 10 years whereas 23 percent had worked for less than three years. Those who worked
for a period of between 3 to six years comprised 14 percent whereas 12 percent had
worked for eleven years and above as illustrated in table 4.4 below.
Table 4.4: Years of Experience
Years of Experience Frequency Percent
Less than 3 years 8 23%
3-6 years 5 14%
7-10 years 18 51%
11 and Above 4 12%
Total 35 100%
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Table 4.6 presents the summary statistics of the variables used in the study. The average
value for use of short-term form of budgetary control is 4.03 with a standard deviation of
1.26. The mean for application of long-term budgeting in the firm was 3.33 with a
standard deviation of 1.16. The mean for the use of fixed budgeting was 3.61 with a
standard deviation of 1.12 while that of using flexible budgeting in the firm was 3.42,
having a standard deviation of 1.17. On the use of zero based budgeting, the mean was
3.48 with a standard deviation of 1.37. The table also shows that on average the firms
perceived use of rolling budget was at 3.27 with a standard deviation of 1.44. The
respondents also indicated that the average use of activity-based budgeting at East
African Portland Cement Company was 3.30 with a standard deviation of 1.51. The table
further shows that at an average of 3.30, the firm applied incremental budgeting with a
standard deviation of 1.40. A mean of 3.24 indicated that the firm employed planning,
programming budgeting system. Lastly, a mean of 3.55 indicated that the firm used other
budgetary controls other than the ones mentioned above. It had a standard deviation of
1.46.
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4.5 Relationship Between Budgetary Control and Firm Performance
4.5.1 Simba Cement Company Sales Turnover
East African Portland Cement Company Ltd sales turnover has been fluctuating between
8.4 Billion Kenya Shillings and 9.2 Billion Kenya Shillings during the period under
review as indicated in table 4.8 below.
Table 4.8: Simba Cement Company Sales Turnover
Year Sales Turnover in Kshs. “000”
2012 8,508,120.00
2013 9,211,462.00
2014 9,057,292.00
2015 8,417,621.00
2016 8,871,456.00
4.4.4 Simba Cement Company Profit After Tax and Return on Equity Ratios
From Table 4.9 below, there existed a positive relationship between pre/after tax profits
and earnings per share for the East African Portland Cement Company.
Table 4.9: East African Portland Cement Company Pre/After Tax Profits and EPS
Year Profit Before Tax in Ksh. “000” Profit After Tax in Kshs. “000” EPS in
Kshs.
4.4.5 Simba Cement Company – Pre/After Tax Profits and Earnings Per Share
Trend Analysis
From figure 4.5 below, the relationship between sales turnover, Profit Before/After Tax
and Earnings per Share for the East African Portland Cement Company Ltd is mixed.
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Figure 4.1: East African Portland Cement Company Sales Turnover and Pre and
After-Tax Profits and Earnings Per Share Trend Analysis
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CHAPTER FIVE
The study utilized both primary and secondary data. Primary data was obtained from 35
dully filled questionnaires out of the 40 respondents that were targeted in the study. This
was 87.5% return rate which was acceptable and good for generalizations. Secondary data
was obtained from the audited accounts of the East African Portland Cement Company
Ltd for the five-year period 2012-2016. A data collection instrument was used to record
relevant figures necessary for computation of profitability ratios and earnings per share
figures used as the dependent variables. Other secondary data source of information used
in the study included; review of the East African Portland Cement Company profiles,
recommendations from previous studies, company website, magazines, books and
relevant journals. The primary and secondary data was entered into Microsoft Excel. The
quantitative data gathered was coded and evaluated using descriptive statistics. The mean
and standard deviation were used to describe the variables under study. The data collected
was analyzed using the Statistical Package for Social Sciences (SPSS) to test its
reliability.
The research applied descriptive research design. The population comprised 45 employees
of the East African Portland Cement Company. A sample size of 40, representing
88.89% of the total population was used. After the analysis using Excel and SPSS, the
results were presented in form of tables and figures.
Firstly, the study addressed the first research question on the various budgetary control
systems applicable in East African Portland Cement Company. Using regression analysis,
24
the findings established low correlation between sales turnover and budgetary controls
applicable in the firm. Other factors seem to play a greater role in affecting sales turnover
other than the ones mentioned in the study namely: short-term budgets, long-term
budgets, fixed budget, flexible budget, zero based budgeting and rolling budget. Other
budgetary controls used in the study with low correlation with sales turnover include
activity-based budgeting, incremental budgeting and lastly, planning and programming
budgeting system.
Secondly, the study also addressed the question on the effect of budgetary control on
employee behavior at East African Portland Cement Company. The findings indicated a
high correlation which stood at 54.7%. Thus, attributes such as individual needs,
organizational structure management style play crucial role in motivating employees.
The third and last research question of the study was aimed at addressing the effect of
budgetary control on profitability at East African Portland Cement Company. The study
established that the correlation between sales turnover and profit before tax was high
because it stood at 54.4%. However, the correlation between turnover and both profit
after tax and earnings per share stood at 49.1% hence low.
5.3 Discussion
5.3.1 Various Budgetary Control Types in Simba Cement Company
The correlation between budgetary control and sales turnover is low at 0.323. Thus, the
various budgetary control types for instance, short-term form of budgetary control,
longterm budgeting, flexible budgeting, zero based budgeting, rolling budgeting and
activitybased budgeting are responsible for the low positive correlation. This study is in
agreement with Kimani (2014) study on the effectiveness of budgetary control on
performance of nongovernmental organizations in Kenya. However, the study is in
disagreement with the study on the relationship between budgetary control and financial
performance of Kigali Serena hotel in Rwanda (Harelimana, 2017) and effect of
budgetary control on financial performance of state corporations in Kenya (Adongo and
Jagongo, 2013). Both studies exhibited a significant positive correlation between
budgetary control and firm performance.
East African Portland cement Company needs to incorporate other budgetary controls
other than the ones mentioned in this study to improve its sales turnover. Due to the
everchanging business environment in the cement business, it is necessary for East
25
African Portland Cement to develop and implement budgets that are in sync with its
major objectives as outlined in its strategic plan. A culture of inclusivity should be
adopted by the firm to meet its objectives. Thus, all departments should be involved in the
budgeting process with the view to discouraging any resentment that may lead to delayed
achievement of set targets (Hernández-Medina, 2010).
Budgetary features can be used to gauge a firm’s ability to predict future financial
success. Therefore, human factors such as employee motivation, managerial commitment,
competence and employee training affect an organization’s budget control process. The
budgetary control process influences a firm’s financial performance positively because it
has an influence on the firm’s financial objectives and investment opportunities. To
achieve this, management and staff of an organization should be sensitized on the
importance of budgetary controls towards better financial performance in organizations,
the need to make the budgetary process devoid of political interference and the need to
appreciate that budgets are tools for improving management efficiency (Adongo and
Jagongo, 2013).
According to Chirenje, Giliba and Musamba (2013), many countries in the world have
engaged in different forms of planning and hence a lot of literature on planning is
available. However, little attention went into budgetary controls per se even though
budgetary controls are key instruments for allocating scarce resources efficiently and
effectively for a long time now. It is however important to note that in the recent past,
budgeting and budgetary controls have received a considerable attention hence, literature
in this subject has become a common phenomenon.
26
In the recent past, the key recommendation in budget cycles is the need to shift attention
from the traditional annual budgeting practice that has been there for quite some time now
to the medium-term expenditure framework approach of budgeting. Kenya, for instance,
adopted the medium-term expenditure framework approach in the late 90s and
implemented it for the first time in its June 2000 budget ostensibly to observe adherence
to budget ceilings in public spending (Lan, 2012). Despite all the effort, much has not
been achieved because the government is still faced with challenges associated with
budgetary controls. For the case of the East African Portland Cement Company, this
could be evidenced by the strike staged by its employees a few years ago agitating for
better pay, better working environment among other related employee demands.
Since time immemorial, budgets have been used in private and public organizations to set
targets and to align and control managers’ behaviour. Whether an organization is private
or public, budgets are established to fulfill certain requirements. When applied in the
private sector, budgeting aims to assist firms make profit in the most cost-effective way.
In public service however, budget achievements are measured in terms of services
provided by a public entity (Onduso, 2013). Since East African Portland Cement
Company is a state corporation, one can deduce that public entities face many challenges
in the way their budgetary control mechanisms have been affected by government and
political interference over the past few years.
of employee activities and strict checks on government spending has been taking place
which has prompted dysfunctional behavior among employees (Hemsing and Baker,
2013).
27
A budget is a financial plan which mediates all activities in a business setup and focusing
more on expenditure. They are not a new phenomenon. Traditionally, it was used as a tool
to manage expenditure and formed the basis of evaluating and rewarding employees in
organizations. It was also meant to align employees’ behavior towards attainment of
organizational goals (Malgwi and Unegbu, 2012).
According to Abdullahi et al., (2015) on a study of the impact of budget and budgetary
control on financial performance of Tahir guest house in Nigeria, it was established that
proper budget administration and inclusivity in the budgeting process improves both firm
profitability and subordinates’ task performance. The study also concurs with the findings
of the Goal Setting Theory (Lunenburg, 2011) as well as empirical studies by Pimpong
and Laryea (2016), Sugioko (2010) and Onduso (2013).
Kenya is a developing country which must develop her manufacturing industry to realize
her dreams of becoming a developed country by 2030 as envisioned in her vision 2030
strategic plan. The cement industry under which East African Portland Cement Company
falls is a sub-sector of the manufacturing sector of the Kenyan economy. The industry has
existed for several years now. It has gone through a series of development stages starting
with the manual-based system of the early 90s to the current technologically advanced
production methods. Recent trends in the performance and level of activity by
manufacturing firms in Kenya indicate a growing interest in the industry and the potential
for growth. Thus, there is an urgent need by the policy makers to reposition the
manufacturing industry for enhanced performance for the country to realize her vision
2030 dreams.
28
Orebiyi and Ugochukwu (2005) defined a budget as an organization’s plan expressed in
monetary terms aimed at efficiently utilizing the organization’s scarce resources to meet
certain set targets. Osundina and Osundina (2012) defined a budget as an elaborate
financial plan which clearly stipulates how an organization’s goals and objectives can be
achieved.
It is a quantitative statement that is prepared and approved well in advance so that set
targets can be met.
5.4 Conclusion
5.4.1 Effect of Budgetary Controls on Sales Turnover
The study concludes that there is a low positive correlation between budgetary controls
and sales turnover standing at 32.3%. Thus, the various budgetary control types for
instance, short-term form of budgetary control, long-term budgeting, flexible budgeting,
zero based budgeting, rolling budgeting and activity-based budgeting are responsible for
the low positive correlation.
The study also established that budgeting practices are used in the East African Portland
Cement Company. The study revealed that, all the respondents of the firm indicated the
existence of an established budget process at the Company. Thus, an indicator that the
firm’s budgetary process goes through the standard stages of budget planning, budget
control, budget coordination and budget evaluation.
29
5.5 Recommendations
5.5.1 Recommendations for Improvement
5.5.1.1 Effect of Budgetary Controls on Sales Turnover
There is a need to increase the level of sensitization among management and employees
of East African Portland Cement Company on the importance of budgetary controls in
enhancing financial performance. The budgetary control process should consider both
firm needs and parameters within the firm during planning to achieve better results.
Budgets should be used both as indicators of management’s performance as well as tools
used by the firm to enhance its financial goals.
30
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APPENDICES
2. Age Group?
Other (Specify):
4. Education Level
Other (Specify):
39
5. How long have you worked for this organization?
Kindly indicate the extent to which the following aspects of budgetary controls apply to
your firm. Please (ƴ) tick appropriately on a scale of 1-5. 1- Strongly Agree, 2- Agree, 3-
Uncertain, 4- Disagree, 5- Strongly Disagree.
1 2 3 4 5
40
10. Other budgetary controls other than the ones
mentioned above are applicable in your firm
Please tick the extent to which you agree with the following statements on the effect of
budgetary control on employee behavior. Please (ƴ) tick accordingly on a scale of 1-5. 1-
Strongly Agree, 2- Agree, 3- Uncertain, 4- Disagree, 5- Strongly Disagree.
1 2 3 4 5
1. The realization of organizational control is
dependent on top managements’ actions and
sound working relationships between different
levels of an organization’s hierarchy
2. Employees and managers are motivated
when required budget levels are realized.
3. Culture, management style and managers’
attitude towards firm employees influences the
budgeting approach within an organization
4. Employees in your organization are mainly
motivated by money and cannot meaningfully
contribute to the firm’s decision-making
process without good pay
5. Organizational structure greatly affects
employee motivation
6. Individual needs play crucial need in
motivating employees
7. Workers who participate in a budgeting
process understand the goals of that budget
system better
8. Challenge budgets motivate managers in the
budgeting process to work hard towards
achieving set targets.
9. Management sometimes uses external
rewards to influence subordinates’ level of
motivation
41
10. Participation of the lower level managers
and supervisors in the budget process draws
them into the decision making process
Please tick the extent to which you agree with the following statements on the effect of
budgetary control on your firm’s performance. Please (ƴ) tick accordingly on a scale of 1-
1 2 3 4 5
1. Financial performance is presented as a
measure of the market
42
10. Budgetary control decisions are crucial to
a firm’s profitability
After 327,193
Tax
Earnings 3.63 19.73 -4.30 79.52 46.06
Per
Share
43