Page 117 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes 6.3.2 Essentials of a Successful Budgetary Control

The following are the essentials or prerequisite for the successful implementation of a sound
system of budgetary control:
(i) The business objectives, plans and policies should be clearly defined.

(ii) The organisational chart should be clear with responsibility and authority.
(iii) The budgeted output should be stated in clear terms.
(iv) Budget committee should be setup for the establishment and efficient execution of the
plan.
(v) Budget centres should be established for cost control and all budgets should be related to
cost centres.

(vi) The budgetary control system should have full support of top management of the
organisation.
(vii) The accounting system should provide accurate and timely information.

(viii) Staff of the organisation should be strongly and properly motivated towards the system.
(ix) The budget should lay down the targets which are realistic and attainable, and
(x) The budgets should be flexible nature for permit the adjustments in the light of changed
operational circumstances.

Advantages of Budgetary Control

Budgetary control is advantageous for all types of organisations whether large or small. The
advantages of budgetary control may be listed as under:
(i) The most important advantage of a budgetary control is to enable management to conduct
business in the most efficient manner.
(ii) Budgetary control takes the help of different levels of management in the preparation of
the budget.
(iii) Budgetary control is helpful in reviewing current trends in the business and in determining
further policy of the business.
(iv) Budgetary control is a tool for comparing the actual results with that of the budget.
(v) Budgets can be used as a tool of comparing actual performance in terms of budgeted
performance.
(vi) Budgetary control ensures that the capital employed at a particular level is kept at a
minimum level.

(vii) Budgetary control is a guide to the management in the field of research and development
in future.
(viii) An effective system of budgetary control results in coordinated effort of all persons
involved.
(ix) Budgetary control is a good guide to the management for making future plans.
(x) Budgetary control provides advance information and financial position of the organisation.

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