Budgetary Control In Decision Making

Marginal Costing

Marginal Costing is not a method of costing like job, batch or contract costing. It is in fact a technique of costing in which only variable manufacturing costs are considered while determining the cost of goods sold and also for valuation of inventories. In fact this technique is based on the fundamental principle that the total costs can be divided into fixed and variable. While the total fixed costs remain constant at all levels of production, the variable costs go on changing with the production level. It will increase if the production increases and will decrease if the production decreases. The technique of marginal costing helps in supplying the relevant information to the management to enable them to take decisions

To ensure the availability of working capital. To smooth out seasonal variations, by developing new products. To ensure the matching of sales with productions.

Budgetary Control: Budgetary control is the process of preparation of budgets for various activities and comparing the budgeted figures for arriving at deviations if any, which are to be eliminated in future. Thus budget is a means and budgetary control is the end result.

Budgetary control is a continuous process which helps in planning and coordination. It also provides a method of control.

Definition

According to Brown and Howard “Budgetary control is a system of coordinating costs which includes the preparation of budgets, coordinating the work of departments and establishing responsibilities, comparing the actual performance with the budgeted and acting upon results to achieve maximum profitability”.

I.C.M.A. define budgetary control as “the establishment of budgets, relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results either to secure by individual actions the objectives of that policy or to provide a basis for its

The following ae the different classifications of budgets. Classification on the basis of Time Long-term Budgets: Long-term budgets are prepared to reflect long-term planning of the business. Generally, the long-term period varies between five to ten years. They are prepared by the top level management. Long-term budgets are prepared for specialized activities like capital expenditure, research and development, long-term finances, etc. Short-term Budgets: These budgets are generally for a duration of one year and are expressed in monetary terms. Current Budgets: The duration of current budgets is generally in months and weeks. These budgets are prepared for the current operations of the business. As per I.C.M.A. London, ‘current budget is a budget which is established for use over a short period of time and is related to current conditions”. Classification on the basis of functions Functional Budgets: These budgets relate to various functions of the concern. Following are the commonly prepared functional budgets: Purchase Budget Cash budget Production budget Sales budget Materials