3_budgeting.309160624

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BUDGETING:

BUDGETING A budget is financial or quantitative statement prepared and approved prior t o a defined period of time, of the policy to be pursued during that period for the purpose of attaining a given objective.

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BUDGET BUDGETING BUDGETORY CONTROL

REQUIREMENT OF BUDGETING SYSTEM:

REQUIREMENT OF BUDGETING SYSTEM Clear lines of authority and responsibility Organizational goal should be clearly stated. It should be established on the highest possible level of motivation. Budget control system should provide degree of flexibility designed to change in relation to level of activity.

Advantages :

Advantages Budgetary control establishes a basis for internal audit. Scarce resources re optimally utilized Motivational impact to participants for budget making Areas of efficiency and inefficiency are indentified Areas of responsibility are clearly delineated.

Problems in budgeting:

Problems in budgeting Inaccurate record keeping Departmental conflicts Uncertainties Matching responsibility with control.

ESSENTIAL OF BUDGETARY CONTROL:

ESSENTIAL OF BUDGETARY CONTROL Organization of budgetary control Budget centers Budget officers Budget Manual Budget Committee Budget period Determination of Key Factor.

BUDGETING PROCESS:

BUDGETING PROCESS

TYPES OF BUDGET:

TYPES OF BUDGET SALES BUDGET PRODUCTION BUDGET PLANT UTILISATION BUDGET DIRECT MATERIAL BUDGET DIRECT LABOUR BUDGET MANUFACTURING EXPENSES BUDGET ADMINISTRATIVE EXPENSES BUDGET SELLING & DISTRIBUTION EXPENSES CAPITAL EXPENDITURE BUDGET

ZERO BASED BUDGETING:

ZERO BASED BUDGETING ZBB was first introduced by Peter A Pyhrr , a staff control manager at Texas Instruments Corporation in the USA . According to Peter A Pyhrr “an operating and budgeting process which requires each manager to justify his entire budget request in detail from scratch and shifts the burden of proof to each manager to justify why he should spend any money at all. This approach requires that all activities be identified in decision packages which will be evaluated by systematic analysis and ranked in order of importance

Methodology and Steps:

Methodology and Steps Defining the decision units within the firm: Defining the objectives of each DU Identifying activities in the form of DPs Ranking of alternatives DPs in the order of decreasing benefit to the organization using cost benefit analysis technique. Forwarding the ranked DPs to the next higher organizational units for review, merger with other comparable DPs and for re-ranking Finalization of budget proposal as well as preparation of budget for each DU have to be finally approved by top management

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APPLICATION There are two basic requirements for application of ZBB: There must be budgeting system within the organization Managers must develop quantitative measures for use in performance evaluation

BENEFITS AND USES:

BENEFITS AND USES ZBB fosters a culture of efficiency and cost effectiveness and for that matter inculcates consciousness among managers. ZBB allows for quick budget adjustments during these periods when revenue fluctuates widely. ZBB improves budgeting process by focusing on objectives ZBB will provide an objective basis to prune programmes that have outlived their utility and expand high impact programmes . ZBB ensures participation from all concerned and facilitates coordination in planning and control Responsibility accounting system can become more effective under ZBB. Allocation of resources is made according to the needs and benefit derived.

LIMITATIONS AND PROBLEM :

LIMITATIONS AND PROBLEM Top management personal involvements and commitment Creative energies of the managers involved in order to identify innovative DPs A wholly new mental attitude and management style throughout the organization Climate of trust and mutual fund confidence between top management and then operating management. A climate of delegation Adequate feedback to the managers about reasons for their DPs being accepted or rejected.

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