Budgetary Control Process Essay Example
Budgetary Control Process Essay Example

Budgetary Control Process Essay Example

Available Only on StudyHippo
  • Pages: 3 (554 words)
  • Published: October 17, 2018
  • Type: Essay
View Entire Sample
Text preview

A budget represents the financial plans necessary to achieve strategic goals and is usually created on an annual basis for short-term purposes.

The budget enables the distribution of responsibility to managers within different divisions and departments. Each department creates a budget and the departmental manager is held accountable for adhering strictly to the budgeted expenses during the budgetary control process. To implement a budgetary control process for XYZ Co, the following steps must first be taken: 1.

XYZ Co must create a sales budget that outlines the anticipated sales volume for various products during the upcoming budget cycle. This budget should take both quantities and monetary value into account, and the sales department is responsible for providing the necessary information.

The following step involves generating production budgets from the previously created sales budgets. Using


the sales projections provided by the sales department, the production budgets can be developed to ascertain production quantities for various periods. The finance department of XYZ Co needs to prepare budgets for administrative and other expenditures based on the sales and production budgets. The administrative expense budget can be shaped by considering the past period's cost details.

In addition to revenue budgets, capital expenditure budgets will be created to outline upcoming projects and associated expenses for the next year. Cash budgets will also be prepared to detail expenses that will be paid in cash. These budgets will be combined to form an overall budget, including a budgeted profit and loss account, balance sheet, and cash flow statement.

The company plans to create a yearly budget, which will be divided into quarterly and monthly budgets for monitoring by different departments. At the conclusio

View entire sample
Join StudyHippo to see entire essay

of each month, the company will hold a budget review meeting to evaluate each department's performance in comparison to the budgets. By analyzing normal and abnormal variations, the company will determine the reasons for discrepancies and take any necessary corrective actions to improve individual department's performance. The initiation of the budget process will be facilitated by the board of directors, who will establish broad policies based on expected sales and other assumptions in the next 12 months to create the budget. Furthermore, the company plans to establish a "budget committee."

The budget committee will be composed of the finance director as the representative from the board of directors, and other functional and departmental managers as members. The functional and departmental managers will use the overall policies set by the board to create an outline for the departmental budgets. The company anticipates several benefits from implementing this budgetary control process. First, there will be closer coordination between all departments, specifically between production and sales departments to ensure budget goals are met. Second, by planning ahead during the budgetary period, managers will take into account all necessary information to complete the process.

By enabling managers to plan ahead and consider all factors that may affect future performance, an effective budgetary system provides valuable feedback that allows them to learn from mistakes. Additionally, budgets establish realistic and motivating targets for managers to strive for. This ensures that they take their goals seriously and work diligently towards achieving them.

Effective communication is crucial for preparing and monitoring budgets, as well as achieving targets. This involves communication among managers at the same level and between managers and subordinates to gather necessary information.

Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds