Every business needs planning (what we want to achieve) and control (checking performance and correcting deviations). Budgetary control provides a structured system for both.
Budgetary control is closely linked with responsibility centres (departments/cost centres) so that accountability can be fixed.
Budget: A budget is a financial and/or quantitative statement prepared and approved prior to a defined period, showing planned income, expenditure, and resources for achieving objectives.
Budgetary control: A system of planning and control in which:
Objectives/advantages (write any 5–6 in exams):
For budgetary control to work well:
Budgets can be classified in many ways. Common functional budgets are:
Other classifications:
Exam hint: Flexible budget is more suitable for industries where volume fluctuates.
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Budgetary control offers many advantages. Any three are:
It also acts as an early warning system and improves profitability through better resource use.
Essentials of effective budgetary control (any three):
Other essentials include budget manual, budget committee, realistic estimates and follow-up corrective action.
Cost accounting is a form of managerial accounting that aims to capture a company's total cost of production by assessing the variable costs of each step of production as well as fixed costs, such as a lease expense.
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Every business needs planning (what we want to achieve) and control (checking performance and correcting deviations). Budgetary control provides a structured system for both.
Budgetary control is closely linked with responsibility centres (departments/cost centres) so that accountability can be fixed.
Budget: A budget is a financial and/or quantitative statement prepared and approved prior to a defined period, showing planned income, expenditure, and resources for achieving objectives.
Budgetary control: A system of planning and control in which:
Objectives/advantages (write any 5–6 in exams):
For budgetary control to work well:
Budgets can be classified in many ways. Common functional budgets are:
Other classifications:
Exam hint: Flexible budget is more suitable for industries where volume fluctuates.
Flexible budget is a budget designed to change according to the level of activity. It separates costs into fixed, variable and semi-variable parts.
Steps:
Suppose normal capacity = 10,000 units. Costs at 10,000 units:
Prepare a flexible budget for 8,000 and 10,000 units.
At 8,000 units:
At 10,000 units:
Conclusion: Flexible budget shows how costs change with output and makes comparison with actual fair.
Standard costing is a technique where standard (expected) costs are set for materials, labour and overheads, and then actual costs are compared with standards to find variances.
Types of standards (brief):
Variance = Standard cost (or budget) − Actual cost (for cost variances).
Variance analysis tells management where performance deviated and why.
Standard: 10 kg material per unit at ₹5/kg. Actual: 10 kg material per unit at ₹6/kg.
Standard material cost/unit = 10 × 5 = ₹50 Actual material cost/unit = 10 × 6 = ₹60
Material cost variance = Standard − Actual = 50 − 60 = ₹10 (Adverse) per unit.
Interpretation: price increased; management should check supplier rates, purchase planning, and quality.
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Budgetary control is a system of planning and control in which budgets are prepared for a future period, actual results are recorded, actual performance is compared with budgeted targets, deviations are analysed and corrective action is taken.
Budgetary control cycle (exam-style steps):
Thus, budgetary control provides continuous planning and control and helps coordination, cost control and performance evaluation.
