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Unit 6: Budgetary Control

expenditure to be made to this effect. This is to say, this is usually planned 3 to Notes
5 years in advance. For control purposes, it is broken down into convenient
periods like years or months. It goes without saying that capital expenditures
often involved a large quantum of investment and this sort of expenditure
requires prior approval of the top level of management. Therefore, this budget
is subject to strict control by the top level management. The plant engineer is
to prepare this budget in consultation with the budget officer. In course of
preparing the budget, capital costs, period of expenditure and the expected
rate of return on the investment are to be taken into consideration. The capital
expenditure budget will be prepared taking the following further points into
consideration:
(a) Proposal for purchase of new plants to add to the existing capacity,
(b) Proposal for replacement of the existing plants as required,
(c) Requirement of installing an improved machinery for reducing cost of
production,
(d) Overloading on the production facilities, as detailed in the plant
utilisation budget, and
(e) Meeting the requests for machinery and other assets, as the case may be,
from the managers of production, service, transport departments and
the accountant.
A specimen of capital expenditure budget is given below:

Figure 6.4: Capital Expenditure Budget

Capital Expenditure Budget
Department: .......................... Period: .......................
Grand Total Benefits Asset to be
(Total of Expected Replaced
External Rate of
Description External Costs Internal Cost
and Internal Return
Cost
Costs) (`) Saving/
Project No. Cash In- Estimated Life of the Assets Remarks
flows (`)
Fixed Cost of Fixed Assets (`) Delivery Charges (`) Material (`) Labour (`) Overheads (`) Description Cost (`)
Assets Total Cost (`) Total (`)

8. Research and Development Cost Budget: A research and development cost
budget is planned outlay on research and development. This budget will
show in terms of money, the permissible limits within which activities are to
be pursued and how they are to be taken up.

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