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OPORIOPO MICHAEL GODKNOWS
BUDGETING AS TOOL FOR PLANNING AND CONTROL
IN A MANUFACTURING FIRM (A CASE STUDY OF
NIGERIAN BOTTLING COMPANY PLC, ENUGU)
BUSINESS ADMINISTRATION
DEPARTMENT OF ACCOUNTANCY
Madufor, Cynthia C. Digitally Signed by: Content manager’s Name
DN : CN = Webmaster’s name
O= University of Nigeria, Nsukka
OU = Innovation Centre
2
BUDGETING AS TOOL FOR PLANNING AND CONTROL IN A
MANUFACTURING FIRM (A CASE STUDY OF NIGERIAN
BOTTLING COMPANY PLC, ENUGU)
BY
OPORIOPO MICHAEL GODKNOWS
PG/MBA/11/60318
DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA, ENUGU CAMPUS
AUGUST, 2012
BUDGETING AS TOOL FOR PLANNING AND CONTROL IN A
MANUFACTURING FIRM (A CASE STUDY OF NIGERIAN
BOTTLING COMPANY PLC, ENUGU)
3
BY
OPORIOPO MICHAEL GODKNOWS
PG/MBA/11/60318
A PROJECT SUBMITTED IN PARTIAL FULFILLMENT OF
THE REQUIREMENT FOR THE AWARD OF MASTERS OF
BUSINESS ADMINISTRATION, (MBA) DEGREE IN
ACCOUNTANCY
TO
DEPARTMENT OF ACCOUNTANCY
FACULTY OF BUSINESS ADMINISTRATION
UNIVERSITY OF NIGERIA, ENUGU CAMPUS
SUPERVISOR: DR. S.E EMEMGINI
AUGUST, 2012
DEDICATION
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This work is dedicated to my late father Chief Oporiopo Michael. And above all, to God
Almighty whose inspiration and protection to my life is unquantifiable.
ACKNOWLEDGEMENTS
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I would forever remain indebted to God Almighty the sources of my strength and
inspiration. I am grateful to the Head of Accountancy Department, University of Nigeria,
Enugu Campus, Dr. R.O. Ugwoke for his useful advice and suggestion in the course of
the research work.
Worthy of mention is the invaluable contribution of my Supervisor, Dr. S.E.
Ememgini whose corrections and encouragement saw me through this work. I am also
grateful to the immense moral support of Madam Veronica U.A. Also, worthy of note is
my class mate Mr. Frank Solomon.
Similarly, the contribution of my mentor, and friend, Sir Felix Odubo, Director of
Budget, Bayelsa State, cannot be ruled out. The last but not the least is the tireless effort
of the typist Miss Okonkwo Ifeoma and the staff of Nigerian Bottling Company PLC,
Enugu.
ABSTRACT
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The increased complexity of the society and high level of competition in the business
world has made it imperative for business organization to do serious planning and control
in order to survive volatile business climate. This research work studied budgeting as a
tool for planning and control in a manufacturing firm with particular emphasis on
Nigerian Bottling Company PLC, Enugu. The main objective of this study was to x-ray
the relevance of budgeting as tool for planning and control in manufacturing firm. And
also to ascertain the effect of non-existence of budget on the performance of business
organization. The methodology adopted were simple percentage and chi-square statistical
methods to deduce general statement about the effect of budgeting on planning and
control is relevant for the survival of manufacturing companies. Also, budgeting is a tool
for measuring efficiency and performance in manufacturing firm. The recommendations
put forward was that management of every organization should prepare budgeting and
adhere strictly to the provisions of the budget. There should also be a regular and periodic
review of the budget in order to detect variations. The research work will serve as a
template to managers, entrepreneurs, creditors, and employees on how to effectively
allocate scarce resources judiciously through budgetary planning and control.
APPROVAL PAGE
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this is to certify that this work, “Budgeting as a Tool for Planning and Control in a
Manufacturing Firm” (A Case Study of Nigerian Bottling Company Plc, Enugu) was
done by Oporiopo Michael Godknows, with registration number PG/MBA/11/60318, to
the satisfaction of my Supervisor and Head of Department of Accountancy.
………………………………….. ....……………………
DR. S.E EMEMGINI DR. R.O. UGWOKE
Project supervisor Head of Department
Date: …………………………… Date:…………….…
DECLARATION
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i, Oporiopo Michael Godknows, a Postgraduate Student of the Department of
Accountancy, University of Nigeria, Enugu Campus, with Registration Number
PG/MBA/11/60318, has satisfactorily completed the requirements for the course and
research work for the Award of the Degree of Masters of Business Administration
(MBA) in Accountancy.
…………………….………………………
OPORIOPO MICHAEL GODKNOWS
PG/MBA/11/60318
Researcher
TABLE OF CONTENTS
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Title page = = = = = = = = = i
Approval page = = = = = = = = = ii
Declaration = = = = = = = = iii
Dedication = = = = = = = = iv
Acknowledgement = = = = = = = v
Abstract = = = = = = = = = vi
Table of content = = = = = = = = vii
List of table = = = = = = = = viii
CHAPTER ONE: INTRODUCTION
1.1 Background of Study = = = = = = = 2
1.2 Statement of Problem = = = = = = = 3
1.3 Objectives of Study = = = = = = = 4
1.4 Research Questions = = = = = = = 4
1.5 Hypothesis Formulation = = = = = 5
1.6 Significance of the study = = = = = = 6
1.7 Scope of the Study = = = = = = 7
1.8 Limitation of the Study = = = = = = 8
1.9 Definition of Terms = = = = = = = 9
References
CHAPTER TWO
2.1 Review of Literature = = = = = = = 12
2.2 The Concept of Budgeting = = = = = = 13
2.3 Benefits of Budgeting = = = = = = = 16
2.4 Type of Budgeting = = = = = = 18
2.2.1 Fixed Budget = = = = = = = = 18
2.2.2 Flexible Budget = = = = = = = 19
2.2.3 Master Budget = = = = = = = 20
2.2.4 Functional Budget = = = = = = = 21
2.4 Approaches to Budgeting = = = = = = 25
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2.4.1 Zero-based Budgeting (ZBB) = = = = = = 25
2.4.2 Planning, Programme and Budgeting System (PPBS) = = 27
2.4.3 Rolling of continuous budgeting = = = = = 28
2.4.4 Tool for effective budgeting = = = = = = 29
2.5.1 Budget committee = = = = = = = 30
2.5.2 The Accounting Staff = = = = = = = 32
2.5.3 Budget manual = = = = = = = 32
2.6 Management Planning through Budgeting = = = = 33
2.7 Profit Planning Process = = = = = = 34
2.8 The Budgetary Control Process = = = = = 36
2.8.1 Establishment of standards as the basis for control = = = 41
2.8.2 Measurement of performance = = = = = 41
2.8.3 Comparing performance against standard = = = = 42
2.8.4 Corrections of in favourable deviations = = = = 42
2.9 The human aspect of budgeting and budgetary controls = = 43
2.10 Possible Limitations of Budgeting = = = = = 44
2.11 Stages in the Budgeting Process = = = = = 44
2.12 Assembling the Master Budget for a Manufacturing
organization = = = = = = = 46
Reference
CHAPTER THREE: METHODOLOGY
3.0 Introduction = = = = = = = = 49
3.1 Research Design = = = = = = = 49
3.2 Sources of Data = = = = = = = 50
3.3 Primary Sources = = = = = = = 50
3.4 Secondary = = = = = = = 50
3.5 Population of Study = = = = = = = 51
3.6 Determination of Sample Size = = = = = 51
3.7 Sampling procedure = = = = = = 52
3.8 Questionnaire administration = = = = = = 52
3.9 Questionnaire administration schedule = = = = 52A
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3.9 Method of analysis and hypothesis testing = = = = 53
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.0 Introduction = = = = = = = = 55
4.1 Presentation of Data and Analysis = = = = = 55
4.1.1 Question on Personal data = = = = = = 56
4.1.3 Whether the system of budgeting provides a formal budget = = 58
4.1.4 Whether the Responsibility of Every Individual is Defined = = 58
4.1.5 Whether the Budget is a performance Evaluator in your company = 59
4.1.7 How does your company respond to deviation = = = 60
4.1.8 The Type of Budgeting Operated = = = = = 62
4.1.9 Whether the Budget is a tool for measuring efficiency in the company = 63
4.1.10 Whether the Budget is relevant to management in decision making = 64
4.1.11 Is the budget a tool for measuring efficiency in your company = 66
4.1.12 Whether the system budgeting provide a formal budge = = 71
4.1.13 What the survival of your company depends on contingency table = 76
CHAPTER FIVE: SUMMARY OF FINDINGS, RECOMMENDATIONS AND
CONCLUSION
5.0 Introduction = = = = = = = = 80
5.1 Summary of Finding = = = = = = = 80
5.2 Recommendation = = = = = = = 82
5.3 Conclusion = = = = = = = 83
Bibliography
Questionnaires
LIST OF TABLES
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4.1 Question on Personal Data = = = = = = 56
4.2 Question on the existence of a system of budgeting = = = 57
4.3 Whether the System of Budget provides a formal Budget = = 58
4.4 Whether the responsibility of every individual is defined = = 58
4.5 Whether there is a Budget Committee = = = = 59
4.6 Whether Annual Budgets are always acceptable to all levels of staff 60
4.7 The type of Budget being operated = = = = = 62
4.8 Usage of the Annual Budget = = = = = 63
4.9 Adherence to budget provision = = = = = 64
4.10 Evaluation of budget implementation = = = = 65
4.11 Whether the budget is a tool for measuring efficiency = = 66
4.12 The usefulness of budget to management in decision making = 67
4.13 Whether effective budgeting and budgetary planning and control
Contribute to the success of the organization = = = 68
4.14 Whether budgets make profit planning and progress possible = 69
4.15 Whether the survival of the company depend on effective budgetary
planning and control = = = = = = 70
4.16 Whether budgetary planning and control contribute to the success of the
organization = = = = = = 71
4.17 Data analysis and testing of hypothesis = = = = 72
4.18 Testing of hypothesis = = = = = = 73
CHAPTER ONE
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1.0 INTRODUCTION
The success of every organization depends largely on
effective planning and control. Planning and control are pre-
conditions for the attainment of organizational goals. The
objectives of organization are realized through a careful plan of
action and control. Both public and private organizations are
established for the purpose of achieving specific objectives.
Budgetary planning and control are managerial functions
responsible for setting specific targets or expectation to be
met. Budgeting is not only a management planning device but
also a basic accounting model for managerial control. In
manufacturing firm, planning and control are used to set
profit target, revenue, prices and cost.
Hence, planning is the process of deciding ahead of time,
what a firm seeks to achieve and how it seeks to achieve them.
Planning is future-oriented. Control on the other hand, is the
evaluation of performance and the putting in place of
corrective measure where necessary. Control seeks to compare
plans with actual goal realized. Control entails restrain,
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supervision, safeguarding, checking or even to correct
deviations.
1.1 BACKGROUND OF THE STUDY
In a manufacturing industry, and other business
organization, top or line managers are faced with problems of
limited resources due to organization policies. Such policies
may include income and expenditure policies, raw material
utilization policy, purchasing policy, production policy, labour
and time limit policies, it is viewed against the above
mentioned background that the concept of budgeting as a tool
for planning and control is pertinent. It is about making plans
for future, implementation, and monitoring of activities to see
whether it conforms to the plan.
Budget is thus, a formal expression of managerial plan in
quantitative and monetary terms encompassing different
phases of operation aimed at assisting management in the
realization of organization‟s objectives. Budgeting is a financial
and quantitative interpretation, prior to a defined period of a
policy to be implemented in order to achieve a given objective.
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1.2 STATEMENT OF THE PROBLEM
Generally, organizations are faced with limited resources
and the allocation of scarce resources to meet competing
needs. The problem bedeviling most organization is how the
available scarce resources can be allocated effectively and
efficiently to achieve organizational objectives.
The problem therefore, is most manufacturing firm do
not appreciate the relevance of budgetary planning and control
for its survival.
Another glaring issue is the attitude of employees toward
budget implementation. Budgeting may create a sense of
confusion, frustration, suspicion and even hostilities within
organization because employees regard the goals of the
organization as alien to their individual goal.
Most often, government establishment feel that budgeting
is a mere paper work that can be toyed with, thus, most
management executive do not adhere strictly to the budget or
implement it religiously. While many private firms feel that
there is no enabling law binding on them to prepare a budget.
This often makes them to operate without a formal budget.
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1.3 OBJECTIVES OF THE STUDY
The objectives of this study shall include:
1) To ex-ray the relevance of budgeting as tool for
planning and control in manufacturing firm.
2) To ascertain the possible effect of non-existence of
budget on the performance of business organization.
3) To create an opinion as to whether budgeting is
actually an effective tool for profitability planning and
management control.
4) To ascertain the extent to which budgetary planning
and control aid management in decision making.
1.4 RESEARCH QUESTIONS
The following research questions are formulated for the
study.
i. To what extent does the private sector appreciate the
relevance of budgetary planning and control?
ii. What is the attitude of employees towards budget
implementation?
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iii. How can budgeting be used as a performance
evaluator?
iv. What are the problems involved in the implementation
of budget?
1.5 HYPOTHESIS FORMULATION
The success of this research work depends on the
formulation and testing of hypothesis and the drawing of
conclusions from it. The hypothesis is as follows:
HYPOTHESIS I
Ho: Budgeting is not a tool for measuring efficiency
and performance in manufacturing firm.
Hi: Budgeting is a tool for measuring efficiency
and performance in manufacturing firm.
HYPOTHESIS II
Ho: That successful business organization does not
make use of formal budget as management tool.
Hi: That successful business organization make use of
formal budget as management tool.
HYPOTHESIS III
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Ho: Effective budgetary planning and control is not
relevant for the survival of manufacturing
companies.
Hi: Effective budgetary planning and control is relevant
for the survival of manufacturing companies.
1.6 SIGNIFICANCE OF THE STUDY
The significance of this study is that if the
aforementioned objectives are achieved, this research work will
enable managers and employees of organization to appreciate
the relevance of budgeting as a control tool for performance
evaluation and measurement.
The study will also aid top management of business
organization to work out effective strategies to surpass
corporate failure.
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Resources to competing alternatives in order to meet
organizational goals, small business will be able to evaluate
performance and correct deviation where necessary.
1.7 SCOPE OF THE STUDY
This research work shall focus on the “relevance of
budgeting as tool for planning and control in manufacturing
companies”.
In carrying out this study, the researcher focused
attention only on a particular manufacturing firm, even
though, there are many others. In Nigeria since the searcher
could not visit all the manufacturing firms, he limited the
scope of his study only on Nigeria Bottling Company, Enugu.
The decision to study the relevance of budgetary
planning and control about Nigeria Bottling Company was
borne out of its international outlook. It has gained goodwill in
its operating environment in spite of the notable nature of
Nigeria‟s economy; it has been surviving for many years
amidst many competitors. Therefore, references to any other
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business organization are just for the sake of clarity and
emphasis within the scope.
1.8 LIMITATION OF THE STUDY
In the course of carrying out this research work, the
researcher encountered a lot of hurdles. Many organizations
are not willing to disclose detail information relating to their
business operations. This affected the collection of reliable
information.
Financial constraint also affected the researcher since
much is needed for transportation and the procurement of
materials.
The time frame was not also enough to complete a
research of this magnitude since the researcher was also
involved in his course work, and other official work.
1.9 DEFINITION OF TERMS
1. Budget: A budget is a plan quantified in monetary
terms prepared and approved prior to a defined period
of time, usually showing planned income to be
generated and expenditure to be incurred during that
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period and the capital to be employed to attain a given
objective.
2. Budgeting: This is the process of making future plan
of action formulated by management for the whole
organization or a section, expressed in monetary
terms.
3. Budget manual: Budget manual is an instruction or
information manual about the way budgeting operates
in a particular organization and the reasons for having
budgeting.
4. Planning: Planning is the selection of short and long
term objectives and the drawing up of tactical and
strategic plans to achieve those objectives.
5. Efficiency: This is the minimum cost of input required
to produce a desired amount of output.
6. Effectiveness: This is the extent to which actual
performance compares with targeted performance.
7. Economic Order Quantity (EOQ): This is the size that
minimizes the sum of carrying and ordering cost.
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8. Cost Centre: This is any location, person or items or
equipment for which costs may be ascertained and
used for the purpose of cost control.
9. Profit: This is the difference between revenue and
cost.
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REFERENCES
Vincent Onodugo, et al, (2010): Social Science Research,
Principles, Methodss and Application Uwani, El Demark Publisher.
Adeniyi A. Adeniji (2001): An insight into Management
Accounting, Lagos, Value Analysis Consult.
S.N. Kodjo (2009): Decision Accounting for managers, Enugu, De-Adroit Innovation.
Kayode O. Fasua (2010): Manual on Public Sector Accounting,
Jos Laringraphics Press.
Lucey T. (1996): Management Accounting; London, Adine House Publication.
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CHAPTER TWO
2.1 REVIEW OF RELATED LITERATURE
Every action is motivated by human need and wants and
the means of achieving the needs. The effective and efficient
allocation of scarce resources to achieve organizational
objectives is a great challenge to business organization. It is on
the heels of allocating scarce resources to various competing
alternatives that the concept of budgeting emerged. Business
organizations have different goals and objectives. The primary
goals of some business organization revolve round profitability
liquidity, market dominance and social contribution to the
economic and social well-being of the business environment.
Similarly, non profit making organizations like Federal, State,
Local Government and non governmental organization or
establishment also have their specific objectives articulated in
a well defined manner.
This topic, budget, has attracted the attention of many
scholars. Frantic effort has been made in analyzing its roles,
importance, principles, problems and the way forward.
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2.2 THE CONCEPT OF BUDGETING
The concept of budget has drawn the attention of so
many authors and scholars. According to Adeniyi (2001), “a
budget, is a plan quantified in monetary terms prepared and
approved prior to a defined period of time usually showing
planned income to be generated and or expenditure to be
incurred during that period and the capital to be employed to
attain a given objective”, it is the process of preparing detail
short term plans for the functions, activities and department
of organization, thus converting the long-term corporate plan
into action.
Horn (1982) defined budget as the estimate of probable
future income and expenditure, especially, that made by
government. To him, budget is an official statement by the
government of a country‟s income from tax and how it will be
spent.
According to Egbonu (1998), budgeting is defined as a
formal expression of managerial plans in quantitative and
financial terms encompassing different phases of business
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operation and aims at helping management towards the
attainment of organizational objectives, it has the following
ingredients:
i. It is a plan of action.
ii. The plan is stated in quantitative or financial
terms.
iii. It is prepared prior to a defined period of tie for
the control of performance.
iv. It integrates the resources and costs of an
organization to plan for the anticipated level of
performance.
v. It is directed towards the attainment of
organizational goal.
A budget is the financial translation of policy objectives,
in terms of anticipated revenue and expenditure, within a
given period of time, usually a year; it could be annually,
quarterly, monthly and even weekly for review and control
purposes.
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Budgeting is one of the parameters which ensure the
actual achievements of people, departments, ministries and
firms.
No wonder, Akin (1990) defined budget as “a means of
tabulating the projected inflow and outflows of any
organization in order to map out the plans to be achieved at a
specified period of time.
Budget takes a comprehensive financial plan, setting
forth the expected routs for achieving the financial and co-
operate goal of an organization. Budgeting is an essential step
in effective financial planning. Planning is the process of
deciding which objectives to pursue within a specific future
time period and how to achieve those objectives. Planning at
any level in an organization is primarily concerned with the
future implications of current decisions rather than with
decisions to be made in the future. Planning exists at all level
of management, including strategic, tactical and operational
level. Therefore, effective budgeting should be directed towards
the various level of management, departments and sub units
to achieve goal congruency.
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2.2 BENEFITS OF BUDGETING
The survival of business organization depends on
effective budgeting system. The complexity and dynamism of
business environment necessitated the emergence of
budgetary control. Budgeting is an economic tool designed to
put organization in the proper pedestal. Therefore, the role of
budgeting includes:
Budgeting is a formal framework of formulating the
strategic corporate objectives of organization. It is the basis for
formulating the long term goal of organization. It is on this
basis that Gordon (2005) defined budget, “as the corporate
compass of an organization”. He asserted further that, any
organization without a formal budget is like a ship without a
rudder”.
Budgeting enhances the evaluation of performance. The
performance of various departments and sub-units can be
evaluated with ease. The measurement of departmental
performance can be ascertained and corrective measures
made where possible.
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It shows the expected costs and expenses for each
department as well as the expected output. It is the yardstick
for measuring performance.
It helps to co-ordinate and integrates the efforts of
various departments in line with overall objectives of the
organization, this result in goal congruency.
It facilitates control by providing definite expectation in
the planning phase that can be used as a term of reference for
judging performance.
Budget improves the quality of communication. The
overall objectives, goal, line of authority and responsibility and
the process of plan implementation are clearly written and
defined in budget. This clarifies doubt and promotes better
understanding between managers and subordinates.
Budget is a managerial control tool that reveals weakness
in organization, it fixes responsibilities in organization. It
compels all members of management to participate in the
formulation of goals and objectives.
Budgeting reduces the likely-hood of fire-fighting
approach to decision making.
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It helps to save management time through the use of
exception principle, which is the heart of budgetary control.
2.3 TYPES OF BUDGET
The planning and controlling functions of organization
are realized through budgeting. Basically, the classification of
budgeting is a contentious issue. For the purpose of this
research work, budget could be fixed, flexible, master budget
as well as functional budget.
2.2.1 FIXED BUDGET
This type of budget relates to one level of activity on
which all costs are attached. Thus, materials, labour cost and
overhead costs are related to one level of activity.
It is on that premise that Lucy (1988) defined fixed
budget as “one which is designed to remain unchanged
irrespective of the volume of output on turnover attained”.
Fixed budget is a single budget that has no provision for
adjustment should actual activity varies. Fixed budget is not
very applicable in an unstable economy because it cannot
stand the test of time.
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2.2.2 FLEXIBLE BUDGET
Flexible budget recognizes the different behavioural
pattern of costs in relation to the various output levels; it
assumes that cost of labour, material and other materials
used in production vary in accordance to changes in the levels
of activity.
Lucy (1976) defined flexible budget as a budget designed
to adjust the budgeted cost levels in line with the actual levels
attained. According to him, flexible budget analyses each item
of expenditure in the budget into fixed and variable elements.
It thus, recognizes the different costs in relation to
fluctuations in output or turnover designed to change
appropriately with such fluctuation.
According to ICAN (1996), where flexibility is allocated in
the overhead budget, then it is the overhead allowance for
actual output which should be compared with actual
overheads of the period for the purpose of variance analysis.
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2.2.3 MASTER BUDGET
This budget is prepared by incorporating all the
departmental summaries. In the private sector, the master
budget is represented by a firm‟s projected financial
statement, especially the profit and loss account and the
balance sheet.
The master budget is usually divided into two sections as
follows:
(i) CAPITAL BUDGET:
This budget is meant to take care of capital project.
According to Warren and Fess (1986), capital expenditure
budget summarises future plan for acquisition of planned
facilities and equipment. Capital budgeting is a long-term
planning for proposed capital outlays and their financing.
(ii) RECURRENT BUDGET:
Recurrent Budget is made up of recurrent revenue and
recurrent expenditure. It is meant to cover estimates on
yearly basis.
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2.2.4 FUNCTIONAL BUDGET
This type of budget is a subsidiary to the master budget,
it is all the sum total of the component functional budgets that
make up the master budget, it relates directly to the functional
areas of organization.
A typical manufacturing organization has the following:
(i) Sales budget.
(ii) Production Budget.
(iii) Direct Labour Budget.
(iv) Direct Material Budget.
(v) Purchasing Budget.
(vi) Capital Expenditure Budget.
(vii) Cash Budget.
(viii) Administrative Budget.
1. SALES BUDGET
This is a statement of planned sales in terms of quantity
and value, and analysed by product. Lucey (1996) states that
for many organizations, sales volume is the principal factor so
that sales budget becomes the primary budget from which the
34
majority of the other budgets are derived. It is necessary to
make a sales forecast before sales budget can be developed.
2. PRODUCTION OVERHEAD BUDGET
Production Overhead Budget shows the quantity and cost
involved in producing each product. According to Ibitoye
(1995), production budget is a schedule or a “statement of
output in units analysed by products. The output can also be
expressed in terms of standard cost. The Institute of cost and
Management Accountants (ICMA) defined production budget
as the quantity of work achievable at standard performance
expressed in terms of standard unit of work in a standard
period based on sales budget. This takes account of the sales
and production policy so that the sales target can be forged
with the production capacity of the factory.
3. DIRECT LABOUR BUDGET
The labour budget according to Brown and Howard
(1992), “it represents the forecast of direct and indirect labour
requirement to meet the demands of the company during the
period, this budget need to be linked to the production budget.
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Each product specification will give a clear view of the
operation involved, types of labour required and number of
hours allowed to complete the finished product.
4. DIRECT MATERIAL BUDGET
The production department determines the quantity and
type of materials to be used for the manufacturing of various
company products. In most companies, there is a standard
part list and bills of material that give the detail material
requirement of production.
5. PURCHASING BUDGET
The purchase of direct material is a function of the level
of opening inventory, and the desired closing inventories. The
units of materials to be purchased are determined by the
material usage budget plus desired closing inventories less
opening inventories (materials) equal‟s purchases in units.
Hence, it is these units that are budgeted for.
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6. CAPITAL EXPENDITURE BUDGET
Capital Expenditure Budget refers to the estimated
expenditure on fixed assets during a budget period. According
to Onyia (1998), capital expenditure budget is used
interchangeably with capital budgeting or investment decision.
He defined capital budgeting as an investors action to commit
his current funds to long term assets from which he expects
returns over the projected period of investment.
7. CASH BUDGET
Cash Budget indicates the expected cash inflow and the
expected cash outflow. It is a decision making tool that enable
management to plan for optimum and best use of cash.
Glauetr and Underdown (1987) noted that, “cash budget is a
complete survey of the financial implications of expenditure
plan of both current and capital nature during the year. Cash
budget shows a surplus or deficit cash. But on the whole, cash
surplus is an indication of improper use of cash.
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8. ADMINISTRATIVE BUDGET
This budget collects the cost of all administration
expenses such as salaries, wages, supplies, dues,
subscription, telephone expenses, traveling expenses, rent,
postage, depreciation etc. Most of these expenses are fixed
within defined limits so that when it is excessive, investigation
follows
2.4 APPROACHES TO BUDGETING
It is pertinent to point out that properly planned
conventional budgeting system is important to the well-being
of organization. The condition is not stable because of macro
economic variables that impact either positively or negatively
in business activities. The above Scenario calls for a careful
approach to curb the unforeseen in the budgeting system with
the following.
2.4.1 ZERO-BASED BUDGETING (ZBB)
According to Lucey (1996), Zero based budgeting is a cost
benefit approach whereby it is assumed that the cost
allowance for an item is zero and will remain so until the
38
manager responsible justifies the existence of the cost item
and the benefit the expenditure brings. Each cost item and its
level has to be justified in relation to the way it helps to meet
the objectives of the organization.
ADVANTAGES OF ZBB
The advantages of zero based budgeting approach
includes:
a) It enhances the efficient allocation of resources to
various unit and departments.
b) The concept of value for money is effectively
utilized.
c) Inefficiency, obsolescence and ineffectiveness are
easily identified.
d) Staff and Management are well informed of the
operations and activities of organization.
39
DISADVANTAGES
The disadvantages include:
a) Its assumption that economic conditions are constant
does not give room for flexibility. This makes it
impossible to deal with changes.
b) It is time consuming.
c) Lack of management and staff co-operation.
d) It may emphasize short-term benefits to the detriment
of long-term benefits.
2.4.2 PLANNING, PROGRAMME AND BUDGETING
SYSTEM (PPBS)
This budgeting approach is programme oriented; it is a
new comprehensive system of budgeting used in USA and UK.
This is an analytical tool used for assisting management in the
analysis of alternatives as a basis for rational decision making.
Planning, programme and budgeting system provides
regular procedures for reviving goals and objectives, for
selecting and planning programme over a period of years in
terms of output and resources.
40
FEATURES OF PPBS
a) Identification of goals and objectives in each
major units and departments.
b) Analysis of the output of a given programme in
terms of its objectives.
c) Formulation of objectives and programmes
extending beyond the single year at the annual
budget.
d) Analysis of alternatives to find the most effective
means of reaching basic programme objectives.
2.4.3 ROLLING OF CONTINUOUS BUDGET
Rolling budget is defined as the continuous updating of
short-term budget by adding, say, a further month or quarter
and deducting the earlier month or quarter so that the budget
can reflect current conditions. For example, a six month
budget for January – June 2012 will be isolated at the end of
January by preparing February - July 2012 and at the end of
February, March – August will be prepared so that each time
there is a six month budget. This approach absorbs
41
inflationary trend and frequent unexpected changes. But its
implementation is rigorous.
DISADVANTAGES OF ROLLING BUDGET
a) Because budgets are usually updated, the adverse
effect of inflation and other forecasting problems are
eliminated to the barest minimum.
b) Comparison between budgeted and actual figure
become more realistic and reasonable.
DEMERITS
a) It is time consuming and expensive.
b) It requires highly trained manpower.
c) There is much paper work as budgets have to be
prepared continuously.
2.4 TOOL FOR EFFECTIVE BUDGETING
According to Drury (1992), tools for effective budgeting
includes the establishment of budget committee, appointment
of budget officers or director, provision of a budget manual
and the use of accounting staff as well as line staff.
42
2.5.1 BUDGET COMMITTEE
Normally, a budget officer is appointed to be in charge of
budgetary arrangement in a small business organization.
Provision is made for consulting managers or managing
directors or some other executives on any special problems
which may occur relating to preparation, administration, and
control of larger organization, budget committee is formed. In
a manufacturing company, the committee would comprise the
managing director or manager as chairman, the sales
manager, the accountant, the factory/production manager,
the administration manager and any other person. The
composition of budget committee is relative depending on
individual company and circumstances. But, it is advisable to
include staff of other departments such as advising manager,
the chief engineer, the purchasing agent, transportation
manager and one or two sectional factory superintendent or
foremen as direct representative of the employees.
All matters of general importance regarding the various
budgets are decided upon by the budget committee.
43
BUDGET OFFICER OR DIRECTOR
The roles of budget officer or director include the following:
a) To arrange for all meetings of budget committee.
b) To arrange for preliminary programme and compilation
of various departmental budgets.
c) To make available any information that is essential for
budget preparation.
d) To prepare schedule showing when each of the
estimates will be required, to collect the estimates on
the due dates and co-ordination amongst departments.
e) To produce complete master budget and the balance
sheet for submission to the budget committee.
f) To prepare necessary summaries of the final results
and forwarding same members of the budget
committee.
g) To make the necessary revisions which may have been
decided upon by the budget committee or the final
reviewing executives and to transmit the various
budgets back to the departmental heads where
necessary.
44
h) To make details explanation, where necessary of an
important variation between estimated and actual
results.
2.5.2 THE ACCOUNTING STAFF
The importance of the accounting staff in the preparation
of budget is addressed by Drury (1992) when he stated that
accounting staff will always assist managers in the
preparation of their budget. Accounting officer circulate and
advise on the preparation of budget, provide past information
that may be useful for preparing present budget and ensure
the timely submission of budget.
2.5.3 BUDGET MANUAL
According to Lucey (1996), “it is important that a budget
manual is produce so that everyone in the organization can
refer to the manual for guidance and information about the
budgeting process”. The budget manual does not contain the
actual budget for the ensuring period but is more of an
instruction and information on the operations of budgeting in
a particular organization.
45
2.6 MANAGEMENT PLANNING THROUGH BUDGETING
The fundamental purpose of management planning is to
provide a feed-forward process for operations and control. The
concept of feed forward in planning is to give each manager
guidelines for making operational decision on day to day basis.
Planning is vested upon the view that the future success
of an entity can be enhanced by continuous management
action, it presupposes that an entity will be more successful,
in terms of its broad objectives. Management planning is a
continuous process because a planned projection can never be
considered final and ultimate product. Plan must be revised as
conditions change and new information becomes available.
The table below shows a brief illustration:
Adopted from: Adeniyi Adeniji, insight into management
Planning
Designed
Objectives and
goals, strategic,
Tactical
Fee
d F
orw
ard Operations
Actual activities
Transformation
of resources.
Mea
sure
men
t
and
Eval
uat
ion. Control
Actual/Planned
Performance
Compared.
Replanting Feedback
46
2.7 PROFIT PLANNING PROCESS
Ralph Lewis in his planning and control for profit (1974)
states that “No matter how busy management may be, the
bulk of time should be spent on profit planning for the future.
One of the most important approaches that has been
developed for facilitating effective performance of management
is profit planning.
According to Glueck, planning is a set of managerial
activities designed to prepare the enterprise for the future and
to ensure that decisions regarding the use of people and
resources (means) to achieve the company‟s objectives (ends)
are made.
There are many steps to be taken in profit planning, viz:
1) Establishing the appropriate objectives:
objectives here, cover targets of profit expected
from company activities, not sales revenue or
cash-flow, it is always important to take note of
past trends and use it for forecast.
47
2) Establishment of job responsibilities: Jobs
should be broken down in such details that
managers should know the unit of their
managerial decision.
3) Establishment of base data: Sometimes, the
data for profit planning are not in existence or set
out in a way that is not good for the purpose.
There is thus, the need to have a solid data base.
4) Carrying out of situation Audit: This involves
an audit of all the factors (both exogenous and
endogenous) that influence the company‟s affairs.
This includes the establishment of competent
skills and the economic situation that will
impinge on company performance.
5) Establishment of appropriate control system:
Planners should not loose sight of the cost
control in their planning. The budget should set
out standard of performance so that the
company‟s activities will be tailored to that level.
48
6) Variance analysis: This is analysis of the
difference between actual and budged. Most often
problem arises in companies because the
variance was not determined and analysed in
good time.
The diagram below shows a graphic picture of
profit plan.
DEVELOPING PROFIT PLAN
ACTIVITY INFORMATION FLOW
APPROVAL SEQUENCE
PRIMARY PARTICIPATION
Entity Objectives Board of directors, CEO
Entity Goals Planning premises
And Strategies
Top Management
Strategic (long
range) Profit Plan
Middle Managers
Tactical (short
range) Profit Plan
Operating
Managers Source: Adeniyi A. Adeniyi: Insight into Management Accounting.
2.8 THE BUDGETARY CONTROL PROCESS
Budgetary control, according to Obi (2000) is the whole
process of monitoring actual performance and comparing
same with the budget to ensure the attainment of the overall
49
budget objectives. It involves feedback of information on
performance compared with the budget.
Institute of cost and management Accountant (1981)
defined budgetary control as the establishment of budget
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 actions the
objectives of that policy or provide a basis for its revision.
Budgetary control according to Lucey (1996) follows the
classical control cycle whereby each period, usually monthly,
the actual costs and the difference or variances are
highlighted.
Budgetary control is an example of management by
exception where attention is directed to the few items which
are not proceeding to plan. The usual method of feedback is
through budgetary control report to the manager concerned.
The main aim of budgetary control is to provide a formal
basis for monitoring the progress of the organization as a
whole and the objective specified in the planned budget, it
50
provides feedback information necessary to be able to make
corrections to current operation and activities.
Onah (1981) maintained that control budgets should be
for very short periods e.g a day, week, month or quarter,
depending on the nature of the business within a budget
period of say 4 years.
Hence, budgetary control process revolves round three
planning levels namely Level 1: Strategic level; this level is
normally concerned with the overall goals of the organization
on a more or less long-term basis. Top management is usually
directly involved and the formation of budget committee.
Its specific functions include:
Decoding on general policy objectives.
Requesting, receiving and studying units and
departmental budgetary estimates.
Suggesting revision.
Receiving and analyzing budget performance reports.
Approving the budgeting(s).
Recommending corrective action.
51
Level 1: Strategic level: It is pertinent to point out that the
budget committee is indispensable in budget control
process; its primary concern is with the total or
master budget.
Level 2: Tactical Level: This level is concerned with middle
management which has to do with the efficient and
effective management of resources to achieve
corporate goals.
Level 3: Operations-Planning and control level: The level has
to do with actual day to day work performed. In
practice a lot of flexibility is required by supervisors
in applying controls and sanction specified by
management. The feature of budgetary control is
illustrated in the diagram below:
52
FEATURES OF BUDGETARY CONTROL SYSTEM
Sources: S.N. Kodjo: Decision Accounting for managers.
Basically, Massie and Doug…. (1973) posited that
controlling process is made up of four definite steps which
must be applied regardless of the activity being managed.
These are:
1. Establishment of standard.
2. Performance measurement.
3. Comparing performance with standards.
4. Correcting information deviations from
standards.
The Master
Budget
(Feedback)
Operating leading to
presentation of report
Feedback
Instruct
further
action
Complying
to instruction
Budget to
be revised
Is further
action
required
No Decision
action Yes
53
2.8.1 ESTABLISHMENT OF STANDARDS AS THE BASIS
FOR CONTROL
Standards are criteria against which actual results can
be measured. They represent aspects of short-range plan.
Lucey states that standard specifies the expected performance.
The establishment of standard is actually a planning activity,
whose operation spans between planning and controlling.
Standard setting includes quantity, quality, budgets and
objectives.
2.8.2 MEASUREMENT OF PERFORMANCE
Koontz and O. Donnell (1980) states that measurement of
performance against standard is not often predictable while
Massie and Douglas (1973) said that all measurement is
accurate only to a limited degree. Koothz and O. Donnell thus
opined that performance measurement should ideally be on
future basis and anticipatory so that deviation may be
detected in advance. It depends so much on supervision and
is a function of the abilities and skills of the subordinates, the
54
expertise of the superior and the nature of the work
environment.
2.8.3 COMPARING PERFORMANCE AGAINST
STANDARD
This focuses on determining the amount of agreement between
established standard and actual result. The analysis can take
place at or away from the point of operation. The purpose is to
determine whether deviations from standard has occurred,
whether these conditions should be brought to management‟s
attention. Sometimes, comparison may involve historical
events.
2.8.4 CORRECTIONS OF INFAVOURABLE DEVIATIONS
This is the final element in the control process. When
standards have been established and supervision effectively
carried out, and deviation detected after comparison, then
correction of deviation is expected. Corrective actions are
basically from planned performance or the altering of future
performance criteria, i.e. changing of standards. It is
important for managers to develop, analyze and choose among
55
alternatives approaches to overcome these deviations. The
diagram below is an illustration of the above.
THE CONTROL PROCESS
Source: William F. Gluck (1980): Management, Hindsdelle Illinois: Dryden Press
2.9 THE HUMAN ASPECT OF BUDGETING AND BUDGETARY CONTROLS
All organizations are made up of people who will perform a
multitude of activities in pursuit of the organization‟s goals
and objectives. This reaction deals in matters relating to:
- Negative perception of the budget.
Setting the
objective Establishing
Predictors of
the objectives
Establishing
Standards of
performance Evaluating
results against standards
Action to reinforce
and correct the
negative Result
56
- Attitude of top and middle level management, and
- Motivation.
2.10 POSSIBLE LIMITATIONS OF BUDGETING
These limitations may include the following:
- No budgeting system can replace the need for supervisory
executive ability in major decisions.
- Volatile environment
- Places great demand on management time.
- Lack of adequate and realistic data for proper budgeting.
- Persistent increase in the level of inflation.
- Revenue and expenses may be difficult to estimate.
- Political instability and economic depression.
2.11 STAGES IN THE BUDGETING PROCESS
Budgeting process take different process as follows:
Stage I: This involves communicating details of budget
policy and budgets. Top management must
formulate a long range plan as the genesis of
preparing annual budget.
57
Stage II: This involves determining the factors that may
restrict performance.
Stage III: Preparation of the sales budget. Sales budget is the
most important plan in the annual budgeting
process. This is because the volume of sales and
sales mix determines the level of a company‟s
operation.
Stage IV: Initial preparation of budget. The managers who are
responsible for meeting the budgeted performance
should prepare the budget for the areas for which
they are responsible. The budget should originate at
the lowest levels of management and be refined and
co-ordinated at higher levels (i.e, bottom-up
process).
Stage V: Negotiation of budget: In participative approach to
budget, budgets are prepared at lower level and
submitted to superior for approval. The superior will
then incorporate the budget with other budget for
which he is responsible and then submit this
budget for approval to his superior. At each stage
the budget will be negotiated between subordinates
and superior before arriving at consensus.
Stage VI: Co-ordination and review: To individual budget
moves up the organization hierarchy in the
58
negotiation process they must be examined in
relation to each other to ensure that each balances
with each other. Where they do not, modification
will be needed so that they will be compatible with
other conditions.
2:11 ASSEMBLING THE MASTER BUDGET FOR A MANUFACTURING ORGANIZATION
Source: Morse, Wayne J. and Roth, Har……. S(1986) cost Accounting publishing company.
CURRENT BALANCE SHEET
SALES BUDGET
UNITS AND NAIRA
PRODUCTION
BUDGET UNITS
SELLING AND ADMINISTRATIVE
EXPENSE
BUDGET
MANUFACTURING
COST BUDGET
PURCHASES BUDGET
UNITS AND NAIRA
CASH
BUDGET BUDGET
INCOME STATEMENT OF
RETAINED
EARNING
BUDGETED BALANCED
SHEET
59
REFERENCES
Oshisami K. (1992): Government Accounting and Financial
Control, Ibadon spectrum book Ltd.
Horngren, Charles T. (1987): Accounting for Managerial Control.
Obi, O.J. (2000): “Management Account” Onitsha, Adson
Educational Publisher P.
Pandy I.M. (1979): Financial Management, New Delhi, Vikas Publishing House PVT Ltd.
Morse, Wayne J. and Roth, Harold (1986): Cost Accounting
Processing, Evaluating and using Cost data, Califonia, Addison Wesley Publishing Company.
Hongren, Charles (1977): Cost Accounting; London, Prentice
Hall
Onya A.C. (1998): Business Finance in Nigeria Enugu, Hugotez Publication.
ICAN (1996): Distant Learning Pack: Management Accounting,
Lagos Nigeria-Accountancy Training and Publication Ltd.
Ibotoye, Simeon O. (1985): The Hand book of budgetary control Berfordashire Graham Burn Publishing Ltd.
Scott, Waler (1980): Business Budgeting and Budgetary Control
the Law Book Company of Australia PTY Ltd.
MCAL Pine, I.S. (1981): The Basic arts of Budgeting; London, Business Books Ltd.
60
Ona, J.O. (1981): Management Practice in developing
communities; London Cassel Ltd.
Drucker, Peter P. (1974): New Templates for today’s organizations, Harvard Business Review.
Osisioma B.C. (1984): Traditional Control System an
Accounting Emphasis. Lucey T. (1989): Costing, DP Publications.
CIMA (1991): Management Accounting; Official Terminology.
Horugren C.T. (1977): Cost Accounting: A managerial
Emphasis, Prentice Hall.
Glosh B.C. (1980): Fixed Costs in Break-even Analysis Management Accounting.
Kaplan, R.S. and Alkinson A. (1989): Advanced Management
Accounting, Prentice Hall.
Lec T.A. (1986): Income and Value Measurement, Van Nostrand
Reinhold (UK). Johnson G. and Scholes K. (1993): Exploring Corporate
Strategy, Prentice Hall.
Scapens R.W. (1991): management accounting a review of
recent Developments, Macmillan.
61
CHAPTER THREE
METHODOLOGY
3.1 RESEARCH DESIGN
This chapter deals in method and procedures used in
data collection and analysis in the research work. These
procedures include the description of the research design,
Areas of study, Sources of data, development of the survey
instrument, method of data collection and analysis.
3.2 POPULATION OF THE STUDY
The population of the study comprises the member of
staff of the Account department, personnel department, other
top management staff and heads of department of the Nigerian
Bottling Company, Enugu.
3.3 SAMPLE OF THE STUDY
The research topic is somehow technical and may require
expert knowledge in the area, to be able to answer the
questions involved. As a result of this, workers were sampled
from the Account department and personnel department as
well as top management staff.
62
3.3.1 SAMPLE TECHNIQUE
The research adopted the selection sampling as well as
stratified random sampling technique. These involve deliberate
and direct selection of specific element of the population,
which serve as the direct sample, sample of thirty workers in
the organization were selected. The sample was made up of
officer of senior and middle management rank. The sample
size covers every aspect of account and personnel department.
3.4 SOURCES OF DATA
The research is designed to use data from both primary
and secondary data.
3.4.1 PRIMARY SOURCES
For the purpose of this research, the primary sources of
data include the following:-
a. Questionnaires
b. Direct interview
c. Observation and inspection
63
lecture notes, magazines publications and public lectures. Others
include lecture, research books in the library, books of Accounts, office
documents etc.
3.5 POPULATION OF THE STUDY
This comprises all the element or otherwise, of Nigerian Bottling company Enugu. It
this, refers to the totality at members of staff of Nigeria. Bottling company, plc. This
study sought to thrown the existence of effective budgetary planning and control in this
manufacturing company. The population of the study comprises members of staff of
Account department, personnel department, production department and other
department which totaled eighty –five workers (85).
3.6 DETERMINATION OF SAMPLE SIZE
This involves the taking of certain percentage of the population for one’s study. The
sample size was determined with a certain percentage at Nigerian Bottling company
plc, Enugu. The Eight-five workers were group at into three departments. Account
department, personnel department and production departments.
The researcher tried as much as possible to eliminate bias sample with questionnaire it
was determined through the use at statistical technique, thus:
a) There is a sample population, which is the total number of staff in
department, sections of Nigerian Bottling company plc, Enugu.
b) The margin of error was also assumed.
c) Then, the sample technique used in determining the size is yaro ainina
formulae.
64
That is,
n = N
1 + N (e)2
Where,
n = sample size
N = population
e = estimated error
I = constant
Assuming, 5% level of significance
When, N = 85
e = 5%
n = 85
1 +85 (0.05)2
= 85
1.21
= 70.2
= 70
3.7 SAMPLING PROCEDURE
The research topic is somehow technical and may require
expert knowledge in the area, to be able to answer the
questions involved. As a result of this, workers were sampled
from the Account department and personnel department as
well as production department.
65
3.8 QUESTIONNAIRE ADMINISTRATION
The researcher administered the questionnaire to the staff himself
with the help of a personnel staff taking care to achieve judicious
representation of all categories of staff. On the whole, 70
questionnaires were distributed at Nigerian Bottling Company.
The distribution was made to staff of various departments
especially Account and Personnel Departments as well as
Production Department.
3.9 QUESTIONNAIRE ADMINISTRATION SCHEDULE
Categories of
workers
No
distributed
No
collected
No not
collected
%
collected
% not
collected
Account dept 25 21 4 30% 5.7%
Administrative
dept
20 16 4 22.8% 5.7%
Production
dept
25 17 8 24% 11.4%
Total 70 54 16 76.8% 22.8
Total response = 78%
Non response = 22%
66
3.10 METHOD OF ANALYSIS AND HYPOTHESIS TESTING
Data collected will be placed in appropriate categories.
Response to the key questions will be tabulated and simple
percentage used to analyse them.
The Hypothesis will be tested using chi-square, that is,
the (x)2 statistical technique.
To execute the test, the first thing to do is to determine
the theoretical or expected frequencies with the formula for the
chi-square (x)2 is
(x)2 = (01-ei)2
ei
Where (x)2 = chi-square
Oi = Observed frequency
ei = Expected frequency
The levels of significance (x) are given in the chi-square table.
The researcher will utilize 5% (0.05) level of significance and
95% (0.95) level of confidence in testing the hypothesis. The
decision rule is:
67
1. Accept null hypothesis (Ho): (x)2 calculated is lower than
the table or critical value.
2. Reject the null hypothesis (Ho): if (x)2 calculated is higher
than the table or critical value.
3. Equally reject (Hi) if (x)2 calculated is lower than the (x)2
table or critical value.
4. Accept (Hi) if (x)2 calculated is higher than the (x)2 table or
critical value at its degree of freedom and level of
significance.
68
CHAPTER FOUR
DATA PRESENTATION AND ANALYSIS
4.O INTRODUCTION
This Chapter is primarily aimed at presenting, analyzing
and interpreting the result of the questionnaires and
interviews collected in the course of the research study. it will
likely produce some findings. This will provide data for
research hypothesis testing.
There are other findings from interview and answers to
questionnaires, which cannot be presented in tabular form but
will be discussed in this chapter as well as the subsequent
chapter.
It is hoped that the finding of the study will be obtained
in the end of this chapter. This will make it possible to draw
conclusions. And make recommendation,
4.1 PRESENTATION OF DATA AND ANALYSIS
Tables were used to present the result of respondents followed
by a brief discussion of each result.
69
4.1.1 QUESTION ON PERSONAL DATA
Information was obtained from respondent in some
departments of the organization as well as the number of
years they have worked in the company. Result are presented
in table I below:
DEPARTMENTS NO
DISTRIBUTED
NO
COLLECTED
PERCENTAGE
OF
COLLECTION
MADE
Account Dept. 25 21 30%
Personnel Dept. 20 16 22.8%
Production Dept. 25 17 24%
Total 70 54 76.8%
The above table indicates that 30% of the respondents
are in accounts department while 22.8% are in personnel
department and 24% in production department. 23.2% of the
sample did not return their questionnaires.
All the respondents indicated that they have worked in
the firm for over two years.
70
QUESTION 7: ANALYSIS
4.1.3 WHETHER THE SYSTEM OF BUDGETING
PROVIDES A FORMAL BUDGET
The respondents where required to state whether the system
of budgeting in their organization was formal.
TABLE II
Company’s
respondents
Agree Disagree Strongly
agree
Strongly
disagree
total
Accounts
dept.
8 8 4 1 21
Personnel
dept.
4 9 3 0 16
Production
dept.
13 1 0 3 17
Total 25 18 7 4 54
% Response 46.2% 33.3% 12.9 7.4 100%
71
From the table above, 46.2% of the respondents agree that the
system of budgeting provide a formal budgeting process where
as 33.3% of the response disagree on the formal process of
budgeting in the organization.
QUESTION 14: ANALYSIS
WHETHER THE BUDGET IS A PERFORMANCE EVALUATOR
IN YOUR COMPANY
The respondents were asked to state whether the budge is a
performance evaluator.
TABLE 4.1.5
Company’s
respondents
Agree Disagree Strongly
agree
Strongly
disagree
total
Accounts
dept.
11 5 4 1 21
Personnel
dept.
7 5 2 2 16
72
Production
dept.
9 6 1 1 17
Total 27 16 7 4 54
% Response 50% 29.6% 12.9% 7.4% 100%
In table 4.1.5, 50% of the respondents agree that the budget is
a performance evaluator in the company. Then 29.6% strongly
disagree that budget is a performance evaluation in the
company. 12.9% disagreed and 7.4% strongly disagree that
the budget is a performance evaluator in the company.
QUESTION 15: ANALYSIS
How does your company respond to deviation?
The respondents were required to state how the company
responds to deviation.
73
TABLE 4.1.6
Company’s
respondents
Agree Disagree Strongly
agree
Strongly
disagree
total
Accounts
dept.
10 5 4 2 21
Personnel
dept.
12 3 3 2 16
Production
dept.
9 4 2 3 17
Total 31 12 4 7 54
% Response 51.9% 33.3% 12.9 7.4 100%
QUESTION 19: ANALYSIS
WHAT DOES THE SURVIVAL OF YOUR COMPANY DEPEND ON.
74
Respondents were asked to indicate what the survival of the
company depend on.
TABLE 4.1.9
Company’s
respondents
Agree Disagree Strongly
agree
Strongly
disagree
total
Accounts
dept.
11 5 4 1 21
Personnel
dept.
7 5 2 2 16
Production
dept.
9 6 1 1 17
Total 27 16 7 4 54
% Response 50% 29.6% 12.9% 7.4% 100%
From the table above 46.2% of the respondent asserted that
the company has budgetary planning and control 33.3% said
the company has strong internal control, 12.9% at the
respondent said
75
the company has weak budgetary planning and control and
7.4% said the company has week internal control.
QUESTION 16: ANALYSIS
WHETHER THE BUDGET IS A TOOL FOR MEASURING
EFFICIENCY IN THE COMPANY.
Respondents were required to state whether budget is a
necessary tool for measuring efficiency in the organization.
Department Agree Disagree Strongly
agree
Strongly
disagree
Total
Accounts
dept.
7 11 3 0 21
Personnel
dept.
6 6 4 0 16
Production
dept.
12 1 0 4 17
Total 25 18 7 4 54
% Response 46.2% 33.3% 12.9% 7.4% 100%
76
The table above indicates that 46.2% the respondents
answered in the affirmative, 33.3% of the respondents
disagree, 12.9% strongly agree and 7.4% strongly disagree.
QUESTION 18: ANALYSIS
WHETHER THE BUDGET IS RELEVANT TO MANAGEMENT
IN DECISION MAKING.
TABLE 1.4.8
Department Agree Disagree Strongly
agree
Strongly
disagree
Total
Accounts
dept.
7 5 1 3 21
Personnel
dept.
12 6 - 2 16
Production
dept.
10 3 2 3 17
Total 29 14 3 8 54
% Response 53.7% 25.9% 5.5% 14.8% 100%
77
The respondents were required to state whether budgeting is
relevant to management decision making from the table above,
from the table above.
From the table above, 53.7% of the responded asserted that
budgetary planning and control is relevant to management in
decision making, 25.9% disagreed, 5.5% of the respondents
were indifferent and 14.8% were also in the affirmative.
HYPOTHESIS 1
Ho: Budgeting is not a tool for measuring efficiency and
performance in manufacturing company.
Hi: Budgeting is a tool for measuring efficiency and
performance in manufacturing company.
In testing this hypothesis, questions 8, 14, 15, 16 and 17 are
relevant but we shall focus on “16” only.
78
IS THE BUDGET A TOOL FOR MEASURING EFFICIENCY IN
YOUR COMPANY
CONTINGENCY TABLE
Department Agree Disagree Strongly
agree
Strongly
disagree
Total
Accounts
dept.
7(9.7) 11(7) 3(2.7) 0(1.5) 21
Personnel
dept.
6(7.4) 6(5.3) 4(2.0) 0(1.2) 16
Production
dept.
12(7.8) 1(5.6) 0(2.2) 4(1.3) 17
Total 25 18 7 4 54
% Response 46.2% 33.3% 12.9% 7.4% 100%
R1C1 = R1 X C1
R1C1 = 21 X 25 = 9.7
54
79
R1C2 = 21 X 18 = 7
54
R1C3 = 21 X 7 = 2.7
54
R1C4 = 21 X 4 = 1.5
54
R2C1 = 16 X 25 = 7.4
54
R2C2 = 16 X 18 = 5.3
54
R2C3 = 16 X 7 = 2.0
54
R2C4 = 16 X 4 = 1.2
54
R3C1 = 17 X 25 = 7.8
54
R3C2 = 17 X 18 = 5.6
54
80
R3C3 = 17 X 7 = 2.2
54
R3C4 = 21 X 25 = 1.3
54
Degree of freedom (df) = (R-1) x (C-1)
Where R = 3, C = 4
df = (3-1) (4-1)
= 2 x 3 =6
df = 6
If 0.05 level of significance at 6 degree of freedom, the critical
value of X2 otherwise called chi-square tabulated (X2 tab) is
given as 12.592.
X2 = 12.592 tabulated
X2 calculated = 20.95
This is more than the critical value therefore the null
hypothesis is rejected and the alternative hypothesis which
states that budgeting is a tool for measuring efficiently is
accepted.
81
CALCULATED CHI-SQUARE TABLE
Cell location Fo Fe (fo-fe) (fo-fe)2 (fo-fe)2
Fe
R1C1 7 9.7 -2.7 7.29 0.7
R1C2 11 7 4 16 2.2
R1C3 3 2.7 0.3 0.09 0.03
R1C4 0 1.2 -1.2 1.44 1.2
R2C1 6 7.4 -1.4 1.96 0.26
R2C2 6 5.3 0.7 0.49 0.09
R2C3 4 2.0 2 4 2
R2C4 0 1.2 -1.2 1.44 1.2
R3C1 12 7.8 4.2 17.64 1.47
R3C2 1 5.6 -4.6 21.16 3.7
R3C3 0 2.2 -2.2 4.84 2.2
R3C4 4 1.3 2.7 7.29 5.6
Total 54 20.95
X2 = 12.592 tabulated
X2 calculated = 20.95
82
DECISION
This is more than the critical value therefore the null
hypothesis is rejected and the alternative hypothesis which
states that budgeting is a tool measuring efficiently is
accepted.
HYPOTHESIS II
Ho: That successful business organization does not make use
of formal budget as management tool.
Hi: That successful business organization make use of
formal budget as management tool.
In testing this hypothesis, question 6, 7 12, and 15 are
relevant but we shall concentrate only on 7.
WHETHER THE SYSTEM OF BUDGETING PROVIDE A
FORMAL BUDGET
CONTINGENCY TABLE
83
Department Agree Disagree Strongly
agree
Strongly
disagree
Total
Accounts 8(9.7) 8(7) 4(2.7) 1(1.5) 21
Personnel 4(7.4) 9(5.3) 3(2.0) 0(1.18) 16
Production 13(7.8) 1(5.6) 0(2.2) 3(1.2) 17
Total 25 18 7 4 54
% Response 46.2% 33.3% 12.9% 7.4% 100%
Fe = R1 X C1
R1C1 = 21 X 18 = 9.7
54
R1C2 = 21 X 18 = 7
54
R1C3 = 21 X 7 = 2.7
54
84
R1C4 = 21 X 4 = 1.5
54
R2C1 = 16 X 25 = 7.4
54
R2C2 = 16 X 18 = 5.3
54
R2C3 = 16 X 7 = 2.0
54
R2C4 = 16 X 4 = 1.18
54
R3C1 = 17 X 25 = 7.8
54
R3C2 = 17 X 18 = 5.6
54
R3C3 = 17 X 7 = 2.2
54
R3C4 = 17 X 4 = 1.3
54
85
Degree of freedom (df) = (R-1) x (C-1)
Where R = 3, C = 4
df = (3-1) (4-1)
= 2 x 3 =6
If 0.05 level of significance at 6 degree of freedom, the critical
value of X2 otherwise called chi-square.
CALCULATED CHI-SQUARE TABLE
Cell location Fo Fe (fo-fe) (fo-fe)2 (fo-fe)2
Fe
R1C1 8 9.7 -1.7 2.89 0.2
R1C2 8 7 1 1 0.1
R1C3 4 2.7 1.3 1.69 0.6
R1C4 1 1.5 -0.5 0.25 1.5
R2C1 4 7.4 -3.4 11.56 1.5
R2C2 9 5.3 3.7 13.69 2.5
R2C3 3 2.0 1 1 0.5
R2C4 0 1.18 01.18 1.39 1.1
R3C1 13 7.8 5.2 27.04 3.4
R3C2 1 5.6 -4.6 21.16 3.7
86
R3C3 0 2.2 -2.2 4.84 2.2
R3C4 3 1.2 1.8 3.24 2.7
Total 54 18.6
The calculated value is greater than the tabulated value.
Tabulated value = 18.6
Critical value = 12.592
DECISION
Therefore, the null hypothesis is rejected and the alternative
hypothesis which says that successful business organization
make use of formal budget is accepted.
HYPOTHESIS III
Ho: Effective budgetary to planning and control is not
relevant for the survival of manufacturing companies.
87
Hi: Effective budgetary to planning and control is relevant for
the survival of manufacturing companies.
In testing this hypothesis, question 13, 18, 14, 16, 18 and 19
are relevant but we would concentrate on 19 only.
WHAT THE SURVIVAL OF YOUR COMPANY DEPENDS ON
CONTINGENCY TABLE
Department Agree Disagree Strongly
agree
Strongly
disagree
Total
Accounts 8(9.7) 7(7) 6(2.7) 0(1.5) 21
Personnel 5(7.4) 10(5.3) 1(2.0) 0(1.18) 16
Production 12(7.8) 1(5.6) 0(2.2) 4(1.2) 17
Total 25 18 7 4 54
% Response 46.2% 33.3% 12.9% 7.4% 100%
Fe = R1 X C1
fe
88
R1C1 = 21 X 18 = 9.7
54
R1C2 = 21 X 18 = 7
54
R1C3 = 21 X 7 = 2.7
54
R1C4 = 21 X 4 = 1.5
54
R2C1 = 16 X 25 = 7.4
54
R2C2 = 16 X 18 = 5.3
54
R2C3 = 16 X 7 = 2.0
54
R2C4 = 16 X 4 = 1.18
54
R3C1 = 17 X 25 = 7.8
54
R3C2 = 17 X 18 = 5.6
54
89
R3C3 = 17 X 7 = 2.2
54
R3C4 = 17 X 4 = 1.3
54
Degree of freedom (df) = (R-1) x (C-1)
Where R = 3, C = 4
df = (3-1) (4-1)
= 2 x 3 =6
If 0.05 level of significance at 6 degree of freedom, the critical
value of X2
CALCULATED CHI-SQUARE
Cell location Fo Fe (fo-fe) (fo-fe)2 (fo-fe)2
Fe
R1C1 8 9.7 -1.7 2.89 0.29
R1C2 7 7 0 0 0
R1C3 6 2.7 3.3 10.89 4.0
R1C4 0 1.5 -1.5 2.25 1.5
R2C1 5 7.4 -2.4 5.76 0.77
90
R2C2 10 5.3 4.7 22.09 4.1
R2C3 1 2.0 -1 1 0.5
R2C4 0 1.18 -1.1 1.21 1.0
R3C1 12 7.8 4.2 17.64 2.26
R3C2 1 5.6 -4.6 21.16 3.7
R3C3 0 2.2 -2.2 4.84 2.2
R3C4 4 1.2 2.8 7.84 6.5
Total 54 26.82
Calculated value = 26.82
Critical value = 12.592
DECISION
Therefore, the null hypothesis is rejected and the alternative
hypothesis which says that effect budgetary planning and
control is relevant for the survival of manufacturing companies
is accepted.
91
CHAPTER FIVE
SUMMERY OF FINDING, RECOMMENDATIONS AND
CONCLUSION
5.0 INTRODUCTION
This chapter attempts to summarise the findings in the
research work and draw conclusion there from. Attempt has
also been made to highlighted a set ot recommendation. The
recommendation shall be useful for business organizations,
investors, sole proprietors and government who may be
interested in the research topic,
5.1 SUMMARY OF FINDINGS
The discussion of the research findings are based on
responses obtained from the administered questionnaire,
personal interviews, observation and the statistical test
applied to. data collected.
An analysis of the response to the questionnaire
administered as well as the chi-square test indicate that
virtually all corporate
92
organization appreciate the role of budgeting as an effective
tool for planning and control in business organization.
Also, the chi-square test reveals that budgeting is a tool
for measuring efficiency and performance in a manufacturing
firm. Personal interview from some staff of Nigerian J3ottling
Company reveals that it is the basis (or attaining company
goat performance is compared against standard,
Similarly, from the response to the questionnaire
administered, all corporate organizations make use of formal
budgets. This budget usually forms the basis for all the
operation, a activities of the organization. The response also
indicated that eyen small scale business that have no formal
budget also make. use of informal budget.
This is in consonance with the views of Gordon (2005)
who asserted that budgeting is the basis for monitoring the
progress of organization as a whole, as well as its component
parts towards the achievement of organizational objectives,
93
All the same, the discussion had with the staff of
Nigerian Bottling Company point to the fact that the operation
of the budget do not function properly all the time. They
pointed out that sometime, there are serious deviations from
the budget by top management. And also, lower level staff are
not comfortable with the budgeting system.
5.2 RECOMMENDATIONS
It has been observed that effective budgeting system is
basically required for the success and survival of any business
organization in the current competitive market, The
recommendations are as follows:
1. Top management should expose a]1 4epartmental heads
to the budgeting process. This will enable them to
understand the importance of adhering to budget and
administration of cost. Budget education should be
conducted yearly by the financial controller or an
independent accountancy firm.
94
2. The organization should find and make use of ore accurate
basis of variance analysis and adopt flexible budgeting
system to make room for adjustment of the budget where
necessary.
3. Strict adherence to budgetary provision should be practised
by top management to ensure effectiveness,
4. Regular and periodic review of the budget should be
introduced in the organization.
5. The budget performance reporting system should also
enhance the achievement of the primary objective of the
company.
5.3 CONCLUSION
Every business organizations, both manufacturing firm and
non-manufacturing firm, either small scale or large scale
business is usually established for the purpose of achieving
specific objectives.
From the discussion of the findings of the research work,
one may comfortably conclude that budgeting is an effective
tool for
95
planning and control in a manufacturing organization.
Budgetary system sets out objectives and strategies for the
attainment of such objectives, while budgetary control ensures
a strict adherence to the budgetary provision and cost control.
It is also pertinent to point put that budgetary planning
and control enhances efficiency in a organization, hut it is not
also error proof, therefore, budget implementation should be
done with caution.
96
BIBLIOGRAPHY
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Kayode 0. Fasua (2010): Manual on Pulic Sector
Accounting, Jos Laringraphics Press.
Lucey T. (1996): Management Accounting; London, Adine House Publication,
Oshisami K. (1992): Government Accounting and Financial
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Hongren, Charles (1977): Cost Accounting; London, Prentice Hall. . “„ .
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Onya A.C. (1998) Business Finance in Nigeria Enugu, Hugotez Publication.
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Accounting, Lagos Nigeria-Accountancy Training and Publication Ltd.
Ibotoye, Simeon 0. (1985): The Hand book of budgetary
control Berfordashire Graham Burn Publishing Ltd.
Scott, Waler (1980): Business Budgeting and Budgetary Control the Law Book Company of Australia PTY Ltd.
MCAL Pine, I.S. (1981): The Basic arts of Budgeting;
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Drucker, Peter p. (1974): New Templates for today‟s
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Lec T.A. (1986): Income and Value Measurement, Van Nostrand Reinhold (UK).
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Scapens R.W. (1991): Management Accounting a review of recent Developments, Macmillan.
Anao A.O. (1978) Budgeting Theory and Concepts;
Calabar Englewood publication P. 136.
Anyigho C.I. (1999) Cost and Management Ac. Enugu, Hugoteze Publications 200-202
Akin D.A. (1990) Budgeting at the Local Level, Nigeria:
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Anyafor A.M.O. (1996) Nigeria Public Accounting and Budgeting Enugu: Gopro Foundation Press p.39
Akachukwu C. 0 (2002) Statistical Analysis for Business, Enugu: Valson (WA) Ltd p.387
Business Times, September 1,3-19 2004
Bashorum F. 0. (2002) Budgeting and Budgetary Control
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99
School of Postgraduate Studies
Faculty of Business Administration
Department of Accountancy
(MBA Programme)
University of Nigeria, Enugu
Campus.
30th August, 2012.
Dear Respondent,
QUESTIONNAIRE
The questions below are designed for the staff of the three selected departments to assist
the researcher carry out an effective research work on “Budgeting as tool for Planning
and Control in a Manufacturing Firm” (A Case Study of Nigerian Bottling Company Plc,
Enugu). All information obtained will be treated with utmost confidentiality and for
academic purpose only.
Your co-operation is highly appreciated.
Thanks.
Oporiopo Michael God knows
Researcher
100
QUESTIONNAIRE
SECTION A
Please tick ( ) at the appropriate box
Name: Dr./Mr./Mrs.iMiss.
1. Sex
(a) male [1 (b) Female [1
2. Age (a) 18-25 [ 1(b) 26-30 [ ](e) 30 and above [ ]
3. Level of education
(a) WASC [1(b) OND/HND [1(0) 13.Sc and above [1
4. Cadre
(a) Junior cadre [ ](b) intermediate cadre [ ](c) senior cadre [ )
5. Working experience
(a) 5-10 yrs [ 1(b) 11-15 ys [](c) 16-2Oyrs [1(d) 2-Syrs [1
6. Do you have a system of budgeting in your organization?
(a) Agree [j (b) disagree [ J (c) indifferent [1(d) stong1y agree [ ]
7. Does the system of budgeting provide a formal budget?
(a) Agree [ 1(b) disagree [ ](c) strongly agree [ (d) strongly
disagree [ ]
8. Is the responsibility of every individual defined (a)Yes[ (b)No[
101
9. Do you have budget committee in your company? (a) Agree [
] (b) disagree [1(c) Indifferent [ ]
10. Is the annual budget always acceptable to all levels of
staff?
(a) To management only [ J (b) Middle level managers [ 1(c)
operational levels only [ ] (d) All levels of staff [ j
11. What type of budgeting is being operated in your
company?
(a) Fixed budget [1(b) Production budget [ 1(c) Flexible budget [
] (d) Functional budget [ ]
12. Is the budget always considered before any expenses is
incurred?
(a) Agree [ ] (b) Disagree [ 1(c) strongly agree [ 1(d) strongly
disagree [ I
13. Does your company adhere strictly to the budget
provision?
(a) Agree [ I (b) Disagree [ ] (c) indifferent [ ]
14. Is the budget a performance evaluator? And why?
(a) Agree [ J (b) Disagree [ ](c) strongly agrec [ ] (d) strongly
disagree
102
15. How does your company respond to deviation,
(a) Corrected promptly [ ] (b) Corrected after budget
implementation [ 1(b) Indifferent [ ]
16. Is the budget a tool for measuring efficiency jn your
company?
(a) Agree [ ] (b) Disagree [ ] (c) strongly agree [ ] (d) strongly
disagree
17. Does your company has provision for adjustment of the
budget?
(a) Agree [ j (b) Disagree [ 1(c) Indifferent [ I (d) Non of the
above
18. Is the budget relevant to management in decision making?
(a) Agree [ 1(b) Disagree [ ] (c) Indifferent [ ] (d) strongly
disagree { ]
19. The survival of your company depends on what?
(a) Budgetary planning and control [ ]
(b) Weak budgetary planning and control [1
(c) Without budgetary planning and control t: ]
(d) very strong budgetary planning and control [ 1
103
20 Are all the planned activities in your comp4ny articulate4
into the
budget?
(a) Agree [ )(b) Disagree [](c) Strongly agree [ ](d) Indifferent [
]
104