Budget and Budgetary Control are the key components of any business and its decision making process. A business is an organization usually set up with an aim to attain success and bring some change in the society. However, in case of any business the success is determined by the profit or the value it added to the organization at the end of an year. Therefore, the calculations of the sales and expenditures are the basic concepts of any business.
As mentioned, a business is set up with a goal to attain success and thus, as a prerequisite of attaining success one organization needs to be properly aware of all its operations and should also be capable of foresee its future operations. Farsightedness has often been described as a primary means to attain success. Thus, the success of any business is quite dependent on its predictions about future course of actions. In this case, predictions relate to the organizational turnover, business trends during a time period, expenditure patterns etc. All these needs to be put together to determine an organizational strategy which will help the business sustain its growth or attain further growth. Further, in today’s world business relates to funds and capitals raised through different sources, examples: bank loans, venture capitalists, investors etc. All these people are interested in looking at the facts and figures that depicts the organizational success and a successful future course of actions. The facts and figures, mentioned herewith, needs to be properly computed and presented in a form of statement. This document depicting the future of any business is known as budget.
Budgetary control can be described as complimentary concept defined by the budget. Budgetary control depicts different types and aspects of business expenses and ways of controlling the same. It concentrates on the expenditures and makes sure that all the departments and its activities acts accordingly and follow the budget properly. The budget stream-lined the expenditure pattern and helps an organization to carry on its activities smoothly.
Functional Classification of Budget
According to this basis of classification, budgets correspond and are co-terminus, with a particular function and are integrated with the master budget of the business. These are called functional budgets whose number depends, on the size and nature of the business. The usual functional budgets of a business are :
- Sales Budget. This is a forecast of total sales, classified according to groups of products, salesmen and geographical locations.
- Selling and Distribution Cost Budget. This is a forecast based on sales, productive capacity and requirements of inventories, etc.
- Introduction Cost Budget. This is related to the cost of production, including direct materials cost, direct cost and expenses- fixed variable and semi- variable.
- Purchase Budget. Correlated with sales forecast and production planning, it deals with purchase that is required for planned production. Purchase would include both direct and indirect materials and goods.
- Personnel Budget. This has reference to the utilization of men and would include labor employed in productive activity. This would be spat up between direct and indirect labor.
- Research Budget. This relates to improvement in the quality of the product or research for new products.
- Cash Budget. This is a sum total of the requirements of cash in respect of various functional budgets as well as anticipated cash receipts.
- Plant Utilization Budget. This is intended to cover the plant and machinery requirements to meet the budgeted production during the period. Schedules will be produced showing the available load in each department expressed in standard -hours or units.
- Office and Administration Budget. This budget represents costs of all administrative expenses, such as managing director’s salary, staff salaries and expenses of office management like lighting and cleaning.
- Capital Budget. This is a forecast of outlay of fixed assets as also of the sources of capital budget. It may differ from that of other budgets as such expenditure is frequently planned a number of years in advance.
- Master Budget. This ultimate integration of separate, budgets by the accountant provides the Master Budget, which includes estimated profit and loss account for the future period, and an estimated Balance Sheet at the end thereof.