Budgeting Control as an instrument of management control:

Budgeting is the whole process of preparing, implementing and operating

budgets.

• Describe task, purpose, aims.

• State parameters (timescales, budgets, range, scope, territory,
authority).
• State people involved and the way the team will work
(decision-making process).
• Establish 'break-points' at which to review and check progress, and
how progress and results will be measured
• Production, Controlling.
• Cost Centre
• Profitability

Controlling:

• Brainstorming(people)
• Fishbone Diagrams
• Critical Path Analysis Flow Diagrams
• Gantt Charts.

• Discretionary Costs:

The costs of the inputs, or resources required to perform activities are

referred to as discretionary costs.

• Engineered Costs:

Engineered costs result from activities with reasonably

well defined cause and effect relationships between inputs and
outputs and costs and benefits.

• Committed Costs :

Committed costs refer to the costs associated with

establishing and maintaining the readiness to conduct business.
OPERATING

1. SALES BUDGET :

Budgeted Sales $ = (Budgeted Unit Sales)(Budgeted Sales Prices)

Current Period Cash Collections = Current Period Cash Sales

+ Current Period Credit Sales Collected in Current Period
+ Prior Period Credit Sales Collected in Current Period

2. PRODUCTION BUDGET

Units To Be Produced = Budgeted Unit Sales (from 1)

+ Desired Ending Finished Goods - Beginning Finished Goods

3. DIRECT MATERIAL BUDGET

a. Quantity of Material Needed for Production

= (Units to be Produced)(Quantity of Material Budgeted per Unit)

The quantity of material required per unit of product is determined by the industrial
engineers who designed the product. Materials requirements are frequently
described in an engineering document referred to as a "bill of materials".

b. Quantity of Material to be Purchased

= Quantity of Material Needed for Production
+ Desired Ending Material - Beginning Material

c. Budgeted Cost of Material Purchases

= (Quantity of Material to be Purchased)(Budgeted Material Prices)

d. Cost of Material Used

= (Quantity needed for Production)(Budgeted Material Prices)

The cost of materials used is needed in the cost of goods sold budget .

e. Cash Payments for Direct Material Purchases

= Current Period Purchases Paid in Current Period
+ Prior Period Purchases Paid in Current Period
4. DIRECT LABOR BUDGET

a. Direct Labor Hours Needed For Production

= (Units to be Produced)(D.L. Hours Budgeted per Unit)

b. Budgeted Direct Labor Cost

= (D.L. Hours needed for Production)(Budgeted Rates Per Hour)

5. FACTORY OVERHEAD BUDGET

a. Budgeted Factory Overhead Costs

= Budgeted Fixed Overhead
+ (Budgeted Variable Overhead Rate)(D.L. Hours needed for Production from
4a)

b. Cash Payments for Overhead

= Budgeted Factory Overhead Cost
- Depreciation and other costs that do not require cash payments

Difference Between Budget and Forcasting :

Budgeting :

Forcasting :
Types Of Budget :
Zero Based Budget : It is designed to evaluate the whole
spectrum of functional activity so that areas that are inefficient
and of little value are identified.

Performance Budget : It takes into account the past

performance(sales) and analysis. This helps in finding out the
future trend and the seasonal fluctuation.

Flexible Budget : It is defined as a budget designed to change in

accordance with the level of activity actually attained.