Budgetary control

BUDGETARY CONTROL

• MAF 551 MANAGEMENT ACCOUNTING AND CONTROL

LEARNING OBJECTIVE

• Distinguish between feed forward and feedback control systems
• Prepare fixed and flexible budgets
• Prepare performance report
• Discuss motivational, behavioral and ethical issues of budgeting
• Explain the limitations of budgeting
• Describe the practice of Beyond Budgeting

• The use of budgets in controlling operations is known as budgetary control and the centrepiece of budgetary control is the use of budget reports.
• Management needs to compare actual results and planned activities, to monitor if the business is spending according to budget.

• INTRODUCTION

Name of Report	Frequency	Purpose	Primary Recipient(s)
Sales	Weekly	Determine whether sales goals are being met	Top management and sales manager
Labor	Weekly	Control direct and indirect labor costs	VP of production and production department managers
Scrap	Daily	Determine efficient use of materials	Production manager
Departmental overhead costs	Monthly	Control overhead costs	Department manager
Selling expenses	Monthly	Control selling expenses	Sales manager
Income statement	Monthly and quarterly	Determine whether income objectives are being met	Top management

• FEATURES OF BUDGETARY CONTROL

• FEEDBACK & FEED-FORWARD CONTROL

• Performance report or budgetary control statement.
• Compare actual results with the budget.
• Differences identified as variances.
• Management role – investigate and correct the variances if necessary.

• BUDGETARY CONTROL REPORT

• A fixed budget or static budget is a projection of budget data at one level of activity.
• Data for different levels of activity are ignored and actual results are compared with budget data at the activity level used in developing the master budget.
• Used for planning purpose.
• Fixed budget is not appropriate to assess a manager’s performance in where he or she has control over variable costs.
• Disadvantages:
• It ignores the possibility that there can be variations in the expected level of activity.
• The analysis of the variances may be meaningless - not being compared on a common basis.

• FIXED BUDGET