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Budget Control

Budget Control
The budget is the most important planning and managing tool in any enterprise. It shapes profits and describes economic growth. The project planning is expressed as an organized measurable quantity which is called the budget. The budget is also a control tool because it decides the pre-project objectives with which the actual results are compared. The positive and negative variations and trends are evaluated for control purposes. The budget assigns the tasks to various members of the organization and the cost which is expected to be incurred to achieve the organizational goals.

Types of budget: Budgets are categorized on two bases

  • Type of expenditure

  • Level of activity
Depending upon the type of expenditure, budgets can be either capital expenditure or operating budget. Budget is a financial plan which allocates resources for different tasks or the expenditure for various activities. Capital expenditure budget involves allocating finances to build assets of the plant or the facility. It takes into account the bigger picture like investing in research and development by building modern labs or buying sophisticated machinery which are all long term budgeting plans. Operating budgets take into account the profits generated from sales and the cost of operation. The sales budget, manufacturing budget, administrative expenses, distribution cost are all included in the operating budget. The salaries, stationary, rent, electricity and phone bills, audit fees and taxes fall under the operating budget.

Depending upon the level of activity too the budget falls into two classes: fixed budget and flexible budget. The fixed budget the finances are predetermined depending on the level of activity. An example of fixed budget is the government budget. Such budgets are best suited to enterprises where the quality or the quantity of production remains more or less the same and does not fluctuate much. The flexible budget shows the actual cost incurred during the planning, production and post production stages. The flexible budget includes the activities whose costs vary as the time passes and the production might increase or decrease as well.

Characteristics of budget control:

  • The budget projects the sales for future. The sales forecasting dictates all the other expenses.

  • With the approval of budget, the entire organization gets committed to achieving clearly defined goals.

  • The master budget is broken down into short term budget such as quarterly, monthly etc.

  • The actual performance is evaluated against the projected production.

  • The deviations or variations are scrutinized and immediate steps are taken to put the activity back on track.
Hence, the master budget is the sum of sales, production, materials and machinery purchase, labor, manufacturing overhead, administrative and selling expenses, cash and capital expenditure budget. The budget control is the tool which provides an overview of the performance of labor and machines in totality.


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