CS504 Solution
Tuesday, November 06, 2012 Edit This
Budget- Introduction & Budgetary Control
Budget:
A plan which for a definite period, covers, all phases of operations in the future is known as a business budget. Policies, plans, objectives & goals are formally expressed by it & are laid down in advance for the concern as a whole & for each of its sub-divisions by the top management. Thus an overall budget will be there for the concern comprosed of several sub-budgets which are in the form of departmental budgets. Expense limitations are expressed by the budget in the expense budgets & in the sales budget, revenue goals are expressed & for the purpose of realizing the desired profit objective, these must be attained. Besides, plans relating to items such as levels of inventory, additions to capital assets, plans of production, plans of purchasing, requirements of labour, requirements of cash etc. are expressed by the budget. Thus, for a given period, budget is a formal management plans’ & policies’ statement which can be used in that period as a guide or blue print.
The basic elements of a budget are:
- (a) For a specified period of time, it’s a future plan of activity,(b) Budget can be expressed in monetary or physical units or in both,(c) Before the period during which the budget is supposed to operate, it is prepared i.e. it is prepared in advance.(d) Before the preparation of the budget, it is necessary to lay down the objectives which are required to be attained & the policies which are required to be pursued for the achievement of those objectives.
Budgetary Control:
Throughout the budget period, the use of budgets & budgetary reports for the purpose of coordinating, evaluating & controlling day-to-day operations according to the goals which are specified by the budget is involved by budgetary control. The mere presentation of budget doesn’t have much value, its real value lies in the aspects of the planning & its utilization during the period for the purposes of control & coordination. Under budgetary control, actual results are constantly checked & evaluated & comparison of actual result is made with the budgeted goals & wherever indicated, corrective action should be undertaken. The following steps are involved in the process of budgetary control:
- (a) The objectives which are required to be achieved by the business should be defined & specified by budgetary control.(b) For the purpose of ensuring that the desired objectives are accomplished, business plans are needed to be prepared by budgetary control.(c) Budgetary control translates the plans into budgets & relates to particular sections of the budget, the responsibilities of individual executives & managers.(d) Budgetary control constantly compares the actual results with the budget & the differences between the actual & budgeted performance are calculated.(e) For the purpose of establishing the causes, the major differences are investigated by budgetary control.(f) In a suitable form, budgetary control presents the information to the management, relating to variances to individual responsibility.(g) In order to avoid a repetition of any over-expenditure or wastage, management takes corrective actions. Alternatively, where due to the change in circumstances, the budgeted targets cannot be achieved, the budget is revised.
Difference between Budget, Budgeting & Budgetary control:
Individual objectives of a department etc. are indicated by budget, whereas the act of setting the budgets is known as budgeting. All are embraced by budgetary control & also the science of planning the budgets themselves & as an overall management tool, the utilization of such budgets, for the purpose of business planning & control are included in budgetary control. Thus, the term by budgetary control is wider in meaning & both budget & budgeting are included in by budgetary control.
Objectives of Budgetary Control:
The objectives of budgetary control are:
- (1)Compel for planning: As management is forced to look ahead, responsible for setting of targets, anticipating of problems & giving purpose & direction to the organization, this feature is the most important feature of budgetary control.(2)Communication of ideas & plans: Communication of ideas & plans to everyone is effected by budgetary control. In order to make sure that each person is aware of what he is supposed to do, it is necessary that there is a formal system.(3)Coordinating the activities: The budgetary control coordinates the activities of different departments or sub-units of the organization. The coordination concept implies, for example, on production requirements, the purchasing department should base its budget & similarly, on sales expectations, the production budget should in turn be4 based.(4) Establishing a system of control: A system of control can be established by having a plan against which progressive comparison can be made of actual results.(5) Motivating employees: Employees are motivated for improving their performances by budgetary control.
Requisites of an effective system of budgetary control:
- (a) There should be a clearly defined organizational structure where are area of responsibility is emphasized.(b) Within the budgeting process, the employees should participate.(c) For the purpose of relying the measurement of performance, there should be adequate accounting records & procedures.(d) Budgetary control needs to be flexible, so that the plans & objectives may be revised.(e) An awareness of the uses of the budgetary control system should be spread by the management.(f) An awareness regarding the problems of budgetary control & especially the individual’s reactions to budgets should be spread by the top management.
Advantages of Budgetary control:
The advantages of budgetary control system are as follows:
- (1) The objectives of the organization as a whole & the results which should be achieved by each department within this overall framework are defined by the budgetary control.(2) When there is a difference between actual results & budget, then the extent by which actual results have exceeded or fallen short of the budget is revealed by the budgetary control.(3) The variances or other measures of performance along with the reasons of difference between the actual results with those from budgeted is indicated by the budgetary control. Also, the magnitude of differences is established by it.(4) As the budgetary control reports on actual performance along with variances & other measures of performance; for correcting adverse trends, a basis for guiding executive action is provided by it.(5) A basis by which future budget can be prepared or the current budget can be revised is provided by the budgetary control.(6) A system whereby in the most efficient way possible the resources of the organization are being used is provided by the budgetary control.(7) The budgetary control indicates how efficiently the various departments of the organization are being coordinated.(8) Situations where activities & responsibilities are decentralized, some centralizing control is provided by the budgetary control.(9) The budgetary control provides means by which the activities of the organization can be stabilized, where the organization’s activities are subject to seasonal variations.(10) By regularly examining the departmental results, a basis for internal audit is established by the budgetary control.(11) The standard costs which are to be used are provided by it.(12) For the purpose of paying a bonus to employees, a basis by which the productive efficiency can be measured is provided by the budgetary control.
Limitations of Budgetary Control:
The main limitations of budgetary control are:
- (1) It used the estimates as a basis for the budget plan.(2) In order to fit with the changing circumstances the budgetary programme must be continually adapted. Normally for attaining a reasonably good budgetary programme, it takes several years.(3) A budget plan cannot be executed automatically. Enthusiastic participation is required by all levels of management in the programme.(4) The necessity of having a management & administration will not be eliminated by any budgetary control system. The place of the management is not taken by it; rather it is a tool of the management.
Assignment # 1 CS504 Idea Solution Fall 2012
Question 1
Write business requirement of online budgeting control system.
Answer
Business Requirements
This web based online budgeting control application is to provide an electronic
environment for fast processing of university budget related tasks.
This application will help to control budget and will be beneficial for all.
Question # 2
Write functional requirements of online budgeting control system.?
Answer
As it is a web online application so functional requirements should be as follows
Functional Requirements
Login Management
This system should allow the users to login to get access to online budgeting control system
Logout Management
This system should allow the users to logout after login whenever they want.
Account management
This system should allow the user to update account information and should allow the admin (staf) to add delete update user accounts
Report Management
This system should allow only the admin to generate different types of reports
Budget Requests Management
This system should allow gathering annual budget requests from all the departments
and finalizing the budget.**************** It will be used by the head of different departments to request for the budget allocation.
Budget Control/Management
This system should allow the user to control the budget which is allocated and finalized
between all departments.
Budget control manager of financial department will accept, reject or approve the
requests from any department for some valid reason.
(More can be added )
Question # 3
Write non-functional requirements of online budgeting control system.
Non Functional Requirements
1- Usability or user friendliness
This System should be user friendly It will fulfill all user requirements
2- Multiple Users
This system should allow multiple users at a time
3- Performance
This system should be able to provide fast and better performance in order to satisfy all the users.
4- Decision Making
This system should be able to provide all the information required and should help the users in decision making.
