The Budgetary Planning and Control System

1795 WordsNov 10, 20118 Pages
“A budgetary planning and control system may include many individual budgets which are integrated into a ‘master budget’.” Budgeting is concerned with the implementation of long term strategic plans, by translating these long term plans into short term plans of action. A budget is a plan showing a firms short term objectives, and how management intends to acquire, use, and control the resources in order to attain these objectives. A firms budget should be comprehensive and co-ordinated. That is, it must cover the whole organisation, and as long as each individual manager seeks to fulfil his/her part of the budget, the organisation as a whole should be moving in the right direction. Budgets are a useful planning and control device. “A…show more content…
Salmonson, ‘Accounting Principles’, Business Publications Inc., 1983, pp. 923. As we have seen, the budget consists of a number of interrelated budgets which together form the overall planned activities of the business; once the various budgets have been linked together, the overall budget, called the ‘master budget’, is constructed. Each department/function/activity may have its own budget, which will set the targets that must be achieved, in order for the department/function/activity to contribute to the overall plan. Each part of a business for which a budget is prepared is known as a budget centre. A typical master budget for a manufacturing business will include: Sales budget Production budget (in units) Manufacturing cost budget (includes: direct material usage & purchases, direct labour, variable & fixed manufacturing overheads) Operating expense budget (selling and administration budget) Budgeted income statement (Profit and Loss account) Cash budget Budgeted balance sheet In order to construct the master budget, all the individual budgets must be prepared. However, these can not be prepared in random. Some parts of the master budget should not be prepared until other parts have been completed. This is because one budget will be influenced by another; for example, the production budget will depend on the sales budget, since the sales budget will determine how many finished units the firm will require in a given period. Therefore, a logical sequence

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