BUDGETRY CONTROL

PRESENTED BY – GROUP 5

BUDGET – A budget is a financial or quantitative statement , prepared prior to a defined period of time , for the purpose of attaining a given objective

BUDGETRY CONTROL – It is a system of planning and controlling COSTS.

ORGANIZATION FOR BUDGETRY CONTROL

Budget Centre Organization Chart Budget Committee Budget Manual Budget Period

Level of Activity Principal Budget Factor - Sales Activity Plant Capacity Raw Material Labour Management Working Capital

Purchase Manager

DevelopManager

R & DBudge

t

Production Manager

SalesManage

r

Purchasing

Budget

Production costAdmin. Cost,

Capital expendi

ture

Labour

Production

Budget

Selling andDist.

Budget

Personnel

Manager

Accountant

Chief Executive

Budget

Officer

FUNCTIONAL BUDGET

A functional budget is a budget of INCOME and/or EXPENDITURE applicable to particular function.

FUNCTION- Refers to a department or a process.

Example – Sales , production , Purchase , Administration Cost etc…

The SALES BUDGET is a forecast of total sales which may be expressed in monetary or qualitative terms.

Generally quantitative budget is prepared first then it is translated into monetary value

Example

Budgeted sales for year 2004 X - 1600 units at Rs. 10 each Y - 800 units at Rs. 9 each

Actual sales for year 2004 X- 2000 units at Rs. 10 each Y- 400 units at Rs. 9 each

Decision Taken is – Increase price of X by 1/- and Decrease price

of by 1/-.

Budgeted sales of 2005 X- 1920 at 11/- Y- 840 at 8/-

SALES BUDGET

SELLING & DISTRIBUTION COST BUDGET

The Selling and Distribution Cost Budget is a forecast of the cost of selling and distribution of the goods during the budget period.

Budget is based upon the SALES VOLUME

ELEMENT OF COST BUDGET PREVIOUS BUDGET

1) Direct selling expensesSalariesCommissions, etc…

- -

2) Sales Office Expenses

-

3)Distribution Expenses

-

4)Advertising Expenses

-

TOTAL 1+2 +3 + 4 1+2 +3 + 4

Production Budget is a forecast of the production for the budget period. It may be expressed in terms of –

• Units• Standard Hours(A standard hour is the quality of

output or amount of work which should be performed in one hour)

Production budget is prepared on the basis of

Sales Budget. The production capacity of the factory. The estimated changes in stock position. The inherent loss in production, if any. The policy governing the manufacturer or

purchase of components.

PRODUCTION BUDGET –

The budget represents the purchase to be made during the budget period. This will include direct and indirect materials and services.

The purchasing budget may be expressed in terms of quantity or money.

PURPOSE OF PURCHASE BUDGET

• To indicate cash requirements in respect of purchase to be made during budget period

• To enable the purchasing department to plan its operations in time in respect of purchase so that long term forward contract be arranged for

PURACHSE BUDGET

Example

One TV needs 3 picture tube

On 1st Dec following stock was in godown

TV – 100 Picture Tube – 600

Sales Position

NOV – 2000 DEC - 3000 JAN - 2500 FEB - 3500

MARCH – 4000 APRIL - 5000.

It is expected that 10% of TV , picture tube of next month requirement will be kept in stock from 31st Dec onwards.

Prepare Production and Purchase budget for DEC , JAN, FEB .

Particulars

Dec Jan Feb Mar April

Closing stock of finished products

250 350 400 500

(+) units to be sold

3000 2500 3500 4000 5000

(-) Opening stock of finished goods

100 250 350 400 500

Units to be produced

3150 2600 3550 4100 4500

PRODUCTION BUDGET FOR TV

Particular Dec Jan Feb March

Closing stock of raw material units

780 1065 1230

(+) Raw Material units required for production

(3150*3)=9450

(2600*3)=7800

(3500*3)=10650

(4100*3)=12300

(-) Opening stock of raw material unit

600 780 1065 1230

Units to be produced

9630 8085 10815

PURCHASE BUDGET FOR Picture Tube

PRODUCTION COST BUDGET

This budget is a forecast of the cost of production estimated in the Production Budget.

Example Period – April 2013Particulars Dep 1 Dep 2 Dep 3 TOTAL

Production as per Budget(Units)

250 300 600 1150

ELEMENTS OF COST

Direct Material 2 3 4 9

Direct Labour 5 4 1 10

Direct Expenses 9 7 5 21

Factory Overheads 4 3 2 9

PRODUCTION COST 20 17 12 49

PERSONNEL BUDGET-

This Budget will show in financial terms , the number of working hours or in other convenient units.

PURPOSE of PERSONNEL Budget

• Help in Labour Management.• It shows the planned outlay on direct and indirect wages .

Classification

No of workers

Hours Man-hours

Rate/hr Amount

1) Direct Labour

- - - -

Total TOTAL (1)

2) Indirect

Production - - - -

Admin. - - - -

Selling & Dist.

- - - -

R & D - - - -

TOTAL (2)

TOTAL(1+2)

PLANT UTILIZATION BUDGET

This Budget shows the estimated plant facilities required to meet the budgeted production as set out in production budget.

REPAIRS and MAINTENANCE BUDGET

This budget may be set in four parts –

Preventive , emergency , major and for cost related to Maintenance Budget

CAPITAL EXPENDITURE BUDGET

Planned for capital in monetary terms. It is prepared for long term.All the fixed assets are valued in monetary terms.

ZERO BASE BUDGETINGAlso Known as NIL-BUDGET

DEMAND DEPENDENT

Steps in ZBB

1) Identification of ‘DECISION UNITS’.

2) Ranking of all Decision Packages.

3) Allocation of the resources accordingly.

Advantages –

1) Careful planning.2) Involvement of lower and middle level management.3) Resources are allocated according to needs and benefits derived.