Budgetary Control Process

INTRODUCTION

This report is focused on budgetary control, which is the method of creating budgets and identifying areas of charge for individual managers, and frequent comparisons of forecasted costs against actual results. I will discuss budgetary control in more depth and its assess its relationship with the strategic planning, budgetary control process, fixed and flexile budgets and variance analysis.

What is a budget?

Budgets are the foundations of finances, helping executives make decisions to reach requirements of a policy. It is a measured plan of future targets and goals the business wants to attain for the following accounting period, while forecast budgets are a rough estimate of probable outcomes of the organisation. Executives

They may be needed at the planning stage, to compliment the fixed budget or be needed to compare with actual results at the end of a control period, as this produces useful control information such as the measure of performance. An example of a flexible budget would be assume a fruit market stall was planning on selling 15,000 apples the following year, the fixed budget will only have the inputted data of this assumption of volume sales, however if the owner thinks sales may be as high as 18,000 units or as low as 12,000 units due to external or internal factors, there will be a budget for every 10,000th unit between these values. This has many advantages, including an estimate of costs over time and predictions of restraining factors that could prevent sales. The owner could find means to be more efficient by saving costs, space and idle time if output falls short of budget. Flexible budgets are an important factor in budgetary control and they resolve practical issues with monitoring the budgetary control system.

Preparing flexible budgets

A flexible budget can change according to variations in sales, productions and expenses simply by adjusting the anticipated total costs to the actual level of production achieved. The same principles of marginal costing are used where previous history of cost behaviour is used to estimate future costs. Whole fixed and whole variable costs are easy to forecast however some costs, which are partially fixed and semi-variable, are harder to analyse so we use the high-low method to estimate costs for the future.

High-low