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Unit 6: Budgetary Control

Limitations of Budgetary Control Notes

Budgetary control is a sound technique of control. But, it is not a perfect tool. The budgetary
control as a management control device suffers from the following limitations:
(i) Budgetary control is only technique of the management and is not a perfect tool of
management.
(ii) Budgetary control is time-consuming process. During the preparation period, the business
conditions may change and estimates may go wrong by that time.
(iii) In budgetary control, the managers may have to operate within budget limits even if
circumstances require a change. Long-term budgets suffer from inflexibility.

(iv) The successful operation and execution of budgets depends upon the efficiency of the
executive personnel.
(v) Budgetary control is an expensive technique.

(vi) Budgets are prepared on the basis of forecasts and estimates about the future.
(vii) Budgetary control is an essential tool of decision-making and it helps the management in
taking sound decisions. But it cannot replace the management.

Self Assessment

Fill in the blanks:
1. A …………………… is a predetermined detailed plan of action developed as a guide for
future operations.

2. …………………… refers to the management action of formulating budgets.
3. Budgetary control is a system of …………………… and controlling costs.
4. …………………… is the planning in advance of the various function of a business, so that
business as a whole can be controlled.
5. The most important advantage of a budgetary control is to enable management to conduct
business in the most …………………… manner.

6. Budgetary control is …………………… process.
7. Long-term budgets suffers from …………………….
8. Budgets are prepared on the basis of …………………… and estimates about the future.

6.4 Classification of Budgets

Budgets may be classified into a number of categories. Classification of budgets is based on
some features, connected with the operational activities of a business. Various budgets may be
classified on following basis:

(a) On the Basis of Time,
(b) On the Basis of Functions,
(c) On the Basis of Flexibility, and
(d) On the Basis of New Technology.

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