Definition: Budgetary Control is defined as "the establishment of budgets,
relating the responsibilities of
executives to the requirements of a policy, and the continuous comparison of
actual with budgeted results either to secure by individual action the
objective of that policy or to provide a base for its revision.
Objectives: Determining the objectives to be achieved, over the budget period, and
the policy(ies) that might be adopted
for the achievement of these ends.
Activities: Determining the variety of activities that should be undertaken for
achievement of the objectives.
Plans: Drawing up a plan or a scheme of operation in respect of each class of
activity, in physical a well as
monetary terms for the full budget period and its parts.
Performance Evaluation: Laying out a system of comparison of actual
performance by each person section
or department with the relevant budget and determination of causes for the
discrepancies, if any.
Control Action: Ensuring that when the plans are not achieved,
corrective actions are taken; and
when corrective actions are not possible, ensuring that the plans are revised
and objective achieved
CLASSIFICATION OF BUDGETS
Budgets may be classified on the following bases –
ON TIME PERIOD:
Long Term Budget
Budgets which are prepared for periods longer
than a year are called LongTerm Budgets. Such Budgets are helpful in business
forecasting and forward planning. Eg: Capital Expenditure Budget and R&D
Short Term Budget
Budgets which are prepared for periods less than
a year are known as ShortTerm Budgets. Such Budgets are prepared in cases where
a specific action has to be immediately taken to bring any variation under
Eg: Cash Budget.
A Budget, which remains unaltered over a long
period of time, is called Basic Budget.
A Budget, which is established for use over a
short period of time and is related to the current conditions, is called
It is a Budget designed to remain unchanged
irrespective of the level of activity actually attained. It operates on one
level of activity and less than one set of conditions. It assumes that there
will be no change in the prevailing conditions, which is unrealistic.
It is a Budget, which by recognizing the
difference between fixed, semi variable and variable costs is designed to
change in relation to level of activity attained. It consists of various
budgets for different levels of activity
Budgets, which relate to the individual
functions in an organization, are known as Functional Budgets, e.g. purchase
Budget, Sales Budget, Production Budget, plant Utilization Budget and Cash
It is a consolidated summary of the various
functional budgets. It serves as the basis upon which budgeted Profit &
Loss Account and forecasted Balance Sheet are built up.