In
our earlier article we understood the Budget and Types of Budgets. Today in
this article let us understand or
discuss about Budget, Budgeting, Budgetary Control, advantages of
budget, disadvantages of budget and key factors of budgets.
Budget Meaning
A budget is a blueprint of projected
plan of action expressed in physical units for a specific period of time.
Budget is a plan as well as control tool.
Budgeting
Budgeting refers to the formulation of
plans for future activity which lay down carefully determine programs and
objectives and provide yardstick and also deviation from plan and achievement
can be measured.
Budgetary Control
A principle procedure practices to achieve a set of objectives
through budget and budget reports. It involves the following steps,
§ Budget Establishment
§ Management of Actual Program.
§ Comparison of actual program with budgeted program.
§ Analyzing the cause of variation and reporting to management for
corrective measures.
§ Revision of budgets when circumstances changes if required.
Advantages of Budgeting
The
advantages of budgeting are
§ Reduction of Cost.
§ Elimination of unwanted cost.
§ The budget helps to be efficient and effective in business
operations.
§ It helps the management to decentralize the responsibilities.
§ Helps to maximize the profit and effective utilization of resources
available.
Disadvantages of Budgeting
The
disadvantages of budgeting are,
§ Budget deals with future and we all know that future is uncertain.
Thus the success of budget completely depends on accuracy of the calculations
and predictions made.
§ It is a time consuming process.
§ The success of budget also depends upon the implementation of
budget by an efficient person.
§ It is an essential tool for decision making but can’t replace
management.
§ Preparation of budget requires specialized staff and involves high
cost.
Key Factors of Budgets
Key factor refers to the factor which
may limit the activities of a business concern. Key factor is also called
limiting factor. The following are the
key factors of budget
§ Non-availability of material
§ Non-availability of key personnel.
§ Non-availability of finances.
§ Inadequate space.
§ Low Market dependence.
Now let us try to understand the key factors of budgeting in
detail.
§ Non-availability of Material:
The limited or non-availability
of certain key resources in business will create a limitation to the budget as
prices of such resources is completely controlled by demand and supply.
§ Non-availability of Key Personnel:
The
non-availability of certain key personnel or skilled person will naturally
create limitation to the business as certain specific tasks has to performed by
key personnel. Even the preparation of budget requires the specialized
personnel and can’t prepared by everyone.
§ Non-availability of Finances.
The funds or
finances in business sometimes are not available. Thus the operation of
business get effected and thus some limitations naturally.
§ Inadequate Space:
Whenever businesses take up new
projects and increase the production sometimes the space available for the
operations will be inadequate or insufficient to carry out the operations and
will create troubles and limitations to the project.
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