Budgetary Control

What are the advantages of budgetary control? 

Meaning of Budgetary Control:- Budgetary Control is a system where budgets are used as a means of controlling and planning of costs. It lays down a projection as to what is to be attained and how to be attained in the targeted period.

According to the L.R Howard – “Budgetary control system is a system of controlling costs which contains the established budgets, Coordinate the departments and establishing responsibilities, Comparing actual performance with the established budget and acting upon the achieved results to increase maximum profitability.”

From the above meaning we can analyse that budgetary control operates through different budgets. Different targets are set up under the system such that they can be directly compared with the actual performance, if any difference lies, a responsible person is held responsible for this. To whom given target work. 

Advantage of budgetary control

There are some advantages of budgetary control system which are given as follows:

1. Helps in planning:- The budgetary control enables the management to think in future. After the forecast about the future, then they arrange for suitable or corrective actions well in advance. In simple language it helps managers to focus on operating and financial problems of the organisation.
2. Cost Consciousness: Through the budget established, various executives are delegated responsibility in advance. They are able to control the cost for which they are accountable. It will eliminate cost reduction as well as inefficiency.
3. Leads to economy in operations:- With the help of budgetary control working conditions will be efficient and improved. Due to which it will lead to the economy of operations of organisations. Because the aim of the budget is to control the expenditure of the organisation. All wastes are eliminated by proper control over the operations.
4. Efficient Cooperation Encouraged:- Budgetary control encourages the cooperations among various departments. These departments are engaged in the productions, sales, finance, services etc. Because work is done through teamwork. So every person thinks as a group not as an individual.
5. Encourages Delegations of Responsibility:- With the help of established budget, Top level executives are delegated responsibility for accomplishments. So they control properly under their work which is delegated to them.
6. Time saved:- When the budget is prepared then variance is analysed and measured against the established budget. If variance is found then corrective actions are taken timely. However, all actions are done by corresponding given care which is leaving no scope for rehabilitation of work. Which process saves time.
7. Motivations to workers:- Budget also contains incentives and motivations to the workers. Such enhancement is done for the purpose of attaining a determined or budgeted target. It also increases productivity and efficiency.
8. Service as a media:- Budgets always translates goals and motives of organisation in quantitative and monetary terms. So all targets are communicated to all the concerned departments. Then actual performance and variance reports prepared under bedget control. Afterwards correct actions are taken by the management. At last reports serve as a media of communication between various departments. What are the advantages of budgetary control?

Conclusion:- These are some of the advantages which are applied to an organisation when they use such budgetary control over the organisation.

However, Due to some of its advantages there are some limitations of budgetary control which are as follows. What are the advantages of budgetary control?

LIMITATIONS OF BUDGETARY CONTROL

1. Forecasting Figure:- Budgetary control always uses forecasting and estimation figures. Which might not be accurate to the full extent as always. If the estimate is not correct, budget targets may become useless. Because estimated figures are never real all the time.
2. Expensive System:- For making a budget, a professional and technical qualified team is required whose staff are very costly. So such a budgetary control system is not suitable for the smaller organisation. Because they cannot afford such staff.
3. Extensive Decentralisation:- Budgetary control system contains decentralisation of authority and powers. If proper coordination is not achieved, the objective will become doubtful. So on large businesses where many departments are engaged. There will be no effective budgetary control due to decentralisation.
4. Opposition by Staff:- When actual performance is measured against such a budget. Ghen inefficiency is exposed by such measurement. Due to which inefficient workers or employees are identified. So inefficient people are afraid of such a budgetary control system. They dislike such a budget in their organisation.
5. It is a tool of management only:- Such an established budget cannot work instead of the ability of a superior executive in every business decision. Because it is simply a tool of management and cannot be exchanged with the management.
6. Lack of Flexibility:- Budgets are prepared after viewing various departments goals and objectives. But if any requirement arises in the future for a particular department. Then it will be difficult to change as per the individual department. So the budget lacks flexibility at every time.

Conclusion:- These are some disadvantages of the budgetary control system. Whereas it has many advantages for the organisations. As the one coin has a head and a tail. What are the advantages of budgetary control?

You can also consider the syllabus of cost accounting under the gndu. Before reading all questions of cost accounting you must read as per previous question papers of gndu. These all questions are given by the gndu solved papers. Let\’s read full answer

Note:- If you are tired on the way to study you can also take help of reading love stunning poetry as per your interest. Like love, nature, kidding and peace. Then you can refresh your mind for reading again.  W

What are the advantages of budgetary control?