Page 189 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 6. Budget Manual: Budget Manual is a book that contains the procedure to be followed by
the executives concerned with the budget. It guides the executives in preparing various
budgets. It is the responsibility of the budget officer to prepare and maintain this manual.

Notes The Budget Manual may contain the following particulars:
1. A brief explanation of the objectives and principles of budgetary control.
2. Duties and powers of the budget officer.
3. Functions and duties of the budget committee.
4. Budget period.
5. Accounts classification.
6. Reports, statements, forms and charts to be used.
7. Procedure to be followed for obtaining approval.
8. The finalisation of the functional budgets and their compilation into the master
budget.
9. The form in which the various reports are to be made out, their periodicity and
dates, the persons to whom these and their copies are to be sent.
10. The reporting of the remedial action.
11. The manner in which budgets, after acceptance and issuance, are to be revised or
amended; and
12. The matters, included in budgets, on which action may be taken only with the
approval of top management.
The main idea behind the budget manual is to inform line executives beforehand about
procedures to be followed rather than issuing frequent instructions from the controller’s
office regarding procedures and forms to be used. Such frequent instructions can be a
source of friction between the line and staff management.
7. Budget Period: A budget period is the length of time for which a budget is prepared and
employed. It may be different in the same industry or business. The budget period depends
upon the following factors:
(a) The type of budget - whether it is a sales budget, production budget, raw material
purchase budget, or capital expenditure budget. A capital budget may be for a
longer period, i.e., three to 5 years; purchase and sales budget may be for one year.

(b) The nature of the demand for the product.
(c) The timing for the availability of finance.
(d) The length of the trade cycle.
All the above factors are taken into account while fixing the budget period.

8. Key Factor: It is also known as limiting factor or governing factor or principal budget
factor. A key factor is one which restricts the volume of production. It may arise due to the
shortage of material, labour, capital, plant capacity or sales. It is a factor that affects all
other budgets. Therefore, the budget relating to the key factor is prepared before other
budgets are framed.
9. Budget Reports: Performance evaluation and reporting of variances is an integral part of all
control systems. Establishing budgets in itself is of no use unless a comparison is made

184 LOVELY PROFESSIONAL UNIVERSITY