Budgetary Control

What is budgetary control?

Let me answer that for you…

Budgetary control is a system of management control and accounting in which all operations are forecasted and so far as possible planned ahead, and the actual results compared with the forecasted and planned ones. It involves –

Establishment of budgets

• Continuous comparison of actual with budgets for achievement of targets
• Revision of budgets in the light of changed circumstances.
• Budgetary control acts as a management tool because it:
  • Brings efficiency in working and economy
  • Establishes coordination and coordinates various divisions of business
  • Guards against undue optimism leading to over expansion
  • Acts as a safety signal
  • Adoption of uniform policy
  • Decrease in production costs
  • Adoption of standard costing principles
  • Optimum capitalization
  • Optimum mix which means most profitable mix or combination of different factors of production

Budgetary control also has certain limitations which are:

• It is seen as a opposition against the spirit of budgeting
• Changing economy may influence budgeting
• It is only a tool not a substitute for management

It asks for cooperation from employees and top management also

Budgetary control is often linked with two other terms budget and budgeting but there is difference in all these three terms. Budgets are individual objectives of a department, etc. whereas budgeting may be said to be the act of building budgets. And budgetary control embraces all and in addition includes the science of planning the budgets themselves and utilization of such budgets to affect an overall management tool for the business planning and control.

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