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ANATOMY OF

BUDGET AND

BUDGETARY

CONTROL IN

BUSINESS

ORGANISATION.
(a case study of Delatre Bazon Nig. Ltd.)

A PROJECT WORK SUBMITTED TO THE

SCHOOL OF BUSINESS STUDIES, DEPARTMENT OF

BUSINESS ADMINISTRATION.

IN PARTIAL FULFILLMENT OF THE REQUIREMENT

FOR THE AWARD NATIONAL DIPLOMA

IN BUSINESS ADMINISTRATION.

NOVEMBER 2009

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CERTIFICATION PAGE

We certify this work was carried out by ……………………………..

in the School of Business Studies, department of Business

Administration, Akwa Ibom State Polytechnic as meeting

the requirement for the award of ordinary diploma in

Business Administration.

__________________ ________________
(Supervisor) Centre Co-ordinator

Date __________ Date __________

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DEDICATION PAGE

I dedicate this project to Almighty God for his divine

guidance, grace and mercy throughout my academic pursuit.

May all Glory, Honour, Majesty and power be ascribed unto

His Holy Name in Jesus Name.

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ACKNOWLEDGEMENT

I thereby which to Acknowledged the following people that has made my

dream and purpose in life to come through. First of all, thanks to Almighty

God who gave me power and wisdom, and the grace to be educated and to

MR ___________________________________________ and my dear

mother Mrs. ___________________________________________ who is an

encouragement to my life and my brothers and Sisters ________________

_____________________________________________________________

______ for their love towards me in prayer, also my supervisor who has

been a great help to me. _______________________________________

and my lovely Register of warri center MRS Stella Oyabugbe and my Co-

odinator of warri Centre Mrs Alex Obinaka for her love towards me and

my father

______________________________________________________ whose

Vision for my life was to be great and useful in life and those many love

ones too numerous to name. My prayer to God Almighty is that HE should

bless you all richly in JESUS NAME.

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ABSTRACT
The researcher viewed a budget as a plan expressed in quantitative,

usually monetary term, covering a specific period of time, usually one

year. While a budgetary control is a methodical control of an

organization's operations through establishment of standards and

targets regarding income and expenditure, and a continuous

monitoring and adjustment of performance against them. In this

research work, the researcher will be considering …

• An indication and explanation of the importance of budget and


budgetary control in an organisation as a key marketing control
technique

· An overview of the advantages and disadvantages of budgeting

· An introduction to the methods for preparing budgets

· An appreciation of the uses of budgets

• The role budget and budgetary control in an organization.

This research work is organized in five chapters as follows:

• 1. Introduction

• 2. Review of Related Literature

• 3. Research Methods and Producers

• 4. Data presentation and Analysis and

• 5. Summary, Findings, Conclusion and Recommendation.


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CHAPTER ONE

INTRODUCTION

1.0 THE BACKGROUND OF THE STUDY

Of all business activities, budgeting is one of the most important and,

therefore, requires detailed attention. The research work focuses on

the concept of responsibility centres, and the advantages and

disadvantages of budget and budgetary control. It then goes on to

deal on the detail of budget construction and the use to which budgets

can be put. Like all management tools, the researcher highlights the

need for detailed information, if the technique is to be used to its

fullest advantage.

Budgets can take many forms and serve many functions. Budgets can

provide the basis for detailed sales targets, staffing plans, inventory

production, cash investment/borrowing, capital expenditures (for plant

assets, etc.), and on and on. Budgets provide benchmarks against

which to compare actual results and develop corrective measures.

Budgets give managers "preapproval" for execution of spending plans.

Budgets allow managers to provide forward looking guidance to

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investors and creditors. Budgets are necessary to convince banks and

other lenders to extend credit.

Budgetary control is the process of ascertaining several budgeted

figures for the future of a business enterprise and then making

comparison of these budgeted figures with the actual results for

finding out discrepancies, if any. The comparison of budgeted and

actual figures will allow the management to take curative actions at a

proper time.

Budgetary control can be defined as, “A means of achieving the

financial control of an entity whereby the actual results for a defined

period of time are compared with the budgeted results, any differences

(or variances) being noted, and some corrective action taken to bring

the actual activities back into line with the budgeted ones if such

variances need to be dealt with.”

1.1 STATEMENT OF RESEARCH PROBLEM

In looking at the anatomy of budget and budgetary control in

business organization, some of the questions easily come to

mind are:

1. Can budgeting brings about efficiency and improvement in the

working of the organization.

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2. Is it a way of communicating the plans to various units of the

organization. By establishing the divisional, departmental, sectional

budgets, exact responsibilities are assigned. It thus minimizes the

possibilities of buck passing if the budget figures are not met.

3. Is it a way of motivating managers to achieve the goals set for the

units.

4. Does it serve as a benchmark for controlling on-going operations.

5. Does it help in developing a team spirit where participation in

budgeting is encouraged?

6. Can it help in reducing wastage and losses by revealing them in

time for corrective action.

7. Can it serve as a basis for evaluating the performance of managers.

8. Can it serve as a means of educating the managers.

9. Can budgetary control enables remedial action to be taken as


variances emerge.

10 Can it motivates employees by participating in the setting of


budgets.

11. Can it improve the allocation of scarce resources.

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1.2 OBJECTIVES OF THE STUDY

The objective of management accounting is to help managers achieve

the missions and strategies established for their enterprises. It is a

branch of accounting that provides financial and other information to

managers. A key role for management accountants is to establish the

control systems used to achieve organizational goals and minimize

risks. One of the most important of these is budgetary control, a

powerful tool that encourages planning, sets milestones, evaluates

performance and suggests paths for improvement. Management

accountants also develop information systems that communicate

strategic and operational priorities to managerial decision makers.

The budgetary control is a continuous process that helps in planning,

coordination and controlling of business decisions. A budget is a means and

budgetary control is the end-result. The budgetary control system assists an

organization in setting up the goals and efforts are made for its

achievements. It enables economies in the enterprise. The main objectives of

budgetary control are as follows:

- It is essential for planning, controlling and also acts as an instrument of

coordination.

- It coordinates the actions of various departments.

- Budgetary control helps in eliminating wastes and raises the profitability

position of a business enterprise.

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- It makes a prediction about capital expenditure for future.

- It helps in amending deviations from the established standards.

- It centralizes the control system.

- Budgetary control operates various cost centres and departments with

efficiency and economy.

- the utility and functioning of a budget control process;

- to design of the budgetary control system as a function of the organizational

strategy;

- to show the use of budgets to manage revenues, costs and profits;

- to show the relationship between management control and organizational

structure;

- the organization of financial information in a comprehensible, flexible,

accessible and useful form to empower decision making;

- the evaluation of performance for different administrative units within the

organizational structure;

- the development and use of non financial performance measures.

1.3 SIGNIFICANCE OF THE STUDY

This study is significant because it will produce data on the anatomy of

budget and budgetary control that will be useful to:

1. federal ministry of finance


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2. State ministry of finance

3. national union of local government employees

4. state civil service commission

5. federal civil service commission .

6. managers and top executives in organized private sector

7. students carry a research work in this same issue.

1.4 HYPOTHESES
It is a conjectural statement of the relationships

between two or more variables. It is testable, tentative

problem explanation of the relationship between two or

more variables that create a state of affairs or

phenomenon.

E,C, Osuola (1986 page 48) said hypothesis should

always be in declarative sentence form, and they

should relate to them generally or specially variable to

variables.

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HYPOTHESIS THUS:
1. Explain observed events in a systematic manner
2. Predict the outcome of events and relationships
3. Systematically summarized existing knowledge.

In essence, there exist NULL HYPOTHESIS set up only

to nullify the research hypothesis and the ALTERNATIVE

HYPOTHESIS for the purpose of the study. For the

efficiency of the study, the hypothesis is as follows:

NULL HYPOTHESIS (HO)


1. Budgetary control do not operate in various cost centres and

departments with efficiency and economy.

2.` Budgetary control does not help in eliminating wastes and raises

the profitability position of a business enterprise.

ALTERNATIVE HYPOTHESIS
1. Does Budgetary control operates in various cost centers and

departments with efficiency and economy?.

2. Does Budgetary control helps in eliminating wastes and raises the


profitability position of a business enterprise?.

1.5 LIMITATIONS OF THE STUDY


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A research work of this nature cannot come to an end

without limitation. The researcher encountered

numerous problems which affected the smooth running

of the work. These problems includes, difficulty in

procuring materials for the project, time factor and

financial constraints.

Material Procurement

There was a lot constraints as to getting information

and materials for the job. The researcher made series

of consultations and visit to most renowned institutions

to acquire the needed information. Most materials used

were very difficult to come by, as there is no library

within the town.

Time Constraints

Combining academic work with job is no doubt a

thought provoking issue, as it has to do with time.

Actually, a lot of time was wasted as the researcher

visited the organizations and individuals together with

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government agencies to obtain valuable information for

the project.

Financial Constraints

The researcher would have obtained more information

than what is obtainable here but due to lack of money

to visit some of the firms and government agencies

located a bit farther from the researcher place of

resident.

1.6 THE SCOPE OF THE STUDY

This research work describes the controls necessary to ensure that

public/private funds are safeguarded, with accountability maintained at all

stages. it touches various areas like……….

• Personal budget

• corporate budget

• government budget

• budgetary control systems

• budget holder responsibilities

• management checks

• Definition of related terms and so on

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CHAPTER TWO

LITERATURE REVIEW

2.0 INTRODUCTION

In a business organization, a budget represents an estimate of future

costs and revenues. Budgets may be divided into two basic classes:

Capital Budgets and Operating Budgets.

Capital budgets are directed towards proposed expenditures for new

projects and often require special financing. The operating budgets are

directed towards achieving short-term operational goals of the

organization, for instance, production or profit goals in a business firm.

Operating budgets may be sub-divided into various departmental of

functional budgets. No system of planning can be successful without

having an effective and efficient system of control. Budgeting is closely

connected with control. The exercise of control in the organization with

the help of budgets is known as budgetary control. The process of

budgetary control includes:

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1. Preparation of various budgets.

2. Continuous comparison of actual performance with budgetary

performance.

3. Revision of budgets in the light of changed circumstances.

A system of budgetary control should not become rigid. There should

be enough scope of flexibility to provide for individual initiative and

drive. Budgetary control is an important device for making the

organization. More efficient on all fronts. It is an important tool for

controlling costs and achieving the overall objectives.

2.1 MASTER BUDGET EXPLAINED

Master budget for a big organization summarizes the goals of all

subunits of an organization - either business divisions if the company

is organized along divisional lines or managerial functions if the

company is organized along functional lines.

The master budget consists of expected or projected income

statement, balance sheet, and a cash flow statement, along with

supporting schedules.

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2.2 IMPERATIVE FOR BUDGETING

The advocates of budgeting state that the process of preparing budget

forces executives to become better managers. Budgeting schedule of a

company puts planning where it belongs - in the forefront of

every manager's mind. It also forces him to review his performance in

the last period and identify good practices that enhanced

performance and issues that contributed negatively to performance.

Budgetary control at department level is encouraging department

level personnel to plan their operations for the forth coming period.

Both outputs and inputs are to be planned. If possible outputs and

inputs are converted into revenues and costs.

The accounting system of the company will prepare the actual

revenues and costs generated at the end of the period as well as

during the period. The department managers have to responsibility to

carry out the day to day activities to achieve the best possible results

with their plan/budget as the guiding document. Budgets can be made

flexible so that cost estimates are in relation to the output produced.

Variance analysis can be done to pin point the variables that changed

during the period and their effect on actual results.

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Budgetary control system facilitates participation of department

managers as well as senior level managers in explicitly planning for

the future. The plan can be optimized with various optimization

techniques.

These techniques include linear programming (for product mix

problems), transportation (for planning transport of finished goods)

and assignment (assigning machines for jobs or operators for jobs)

and other operations research techniques. A formal budgeting system

can question the department managers on whether they have applied

the optimization techniques or not and where necessary advise them

to use those techniques and provide specialist support in cases where

necessary.

2.3 BUSINESS START-UP BUDGET

The process of calculating the costs of starting a small business

begins with a list of all necessary purchases including tangible

assets (for example, equipment, inventory) and services (for

example, remodeling, insurance), working capital, sources and

collateral. The budget should contain a narrative explaining how

you decided on the amount of this reserve and a description of the

expected financial results of business activities. The assets should

be valued with each and every cost.


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2.4 CORPORATE BUDGET

The budget of a company is often compiled annually, but may not

be. A finished budget, usually requiring considerable effort, is a

plan for the short-term future, typically one year (see Budget

Year). While traditionally the Finance department compiles the

company's budget, modern software allows hundreds or even

thousands of people in various departments (operations, human

resources, IT etc) to list their expected revenues and expenses in

the final budget.

If the actual figures delivered through the budget period come

close to the budget, this suggests that the managers understand

their business and have been successfully driving it in the intended

direction. On the other hand, if the actuals diverge wildly from the

budget, this sends an 'out of control' signal, and the share price

could suffer as a result.

2.5 EVENT MANAGEMENT BUDGET

A budget is a fundamental tool for an event director to predict with

reasonable accuracy whether the event will result in a profit, a loss

or will break-even. A budget can also be used as a pricing tool.

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2.6 GOVERNMENT BUDGET

The budget of a government is a summary or plan of the intended

revenues and expenditures of that government. The United States

federal budget is prepared by the Office of Management and

Budget, and submitted to Congress for consideration. Invariably,

Congress makes many and substantial changes.

2.7 PERSONAL OR FAMILY BUDGET

In a personal or family budget all sources of income (inflows) are

identified and expenses (outflows) are planned with the intent of

matching outflows to inflows (making ends meet.) In consumer

theory, the equation restricting an individual or household to spend

no more than its total resources is often called the budget

constraint..

2.8 WHY SHOULD WE BUDGET?

Controlling your financial affairs requires a budget. For many people,

the word "budget" has a negative connotation. Instead of thinking of a

budget as financial handcuffs, think of it as a means to achieve

financial success.

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Whether you make thousands of naira a year or hundreds of

thousands of naira a year, a budget is the first and most important

step you can take towards putting your money to work for you instead

of being controlled by it and forever falling short of your financial

goals.

Budgeting and tracking your expenses gives you a strong sense of

where your money goes and can help you reach your financial goals.

Since financial matters are one of the leading causes of marital discord

and divorce, getting a handle on your spending, implementing a

budget, and saving for the future can also have positive effects on

your relationship with your spouse or partner.

2.9 BUDGET TYPES

1. Sales budget: The sales budget is an estimate of future sales,

often broken down into both units and dollars. It is used to

create company sales goals.

2. Production budget: Product oriented companies create a

production budget which estimates the number of units that must

be manufactured to meet the sales goals. The production budget

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also estimates the various costs involved with manufacturing those

units, including labor and material.

3 Cash Flow/Cash budget: The cash flow budget is a prediction of

future cash receipts and expenditures for a particular time period.

It usually covers a period in the short term future. The cash flow

budget helps the business determine when income will be sufficient

to cover expenses and when the company will need to seek outside

financing.

4 Marketing budget: The marketing budget is an estimate of the

funds needed for promotion, advertising, and public relations in

order to market the product or service.

5 Project budget: The project budget is a prediction of the costs

associated with a particular company project. These costs include

labor, materials, and other related expenses. The project budget is

often broken down into specific tasks, with task budgets assigned

to each.

6 Revenue budget: The Revenue Budget consists of revenue

receipts of government and the expenditure met from these

revenues. Tax revenues are made up of taxes and other duties

that the government levies.

7 Expenditure budget: A budget type which include of spending

data items.
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2.10 ADVANTAGES OF BUDGETING AND BUDGETARY CONTROL

There are a number of advantages to budgeting and budgetary

control:

 Compels management to think about the future, which is probably

the most important feature of a budgetary planning and control

system. Forces management to look ahead, to set out detailed plans

for achieving the targets for each department, operation and (ideally)

each manager, to anticipate and give the organisation purpose and

direction.

 Promotes coordination and communication.

 Clearly defines areas of responsibility. Requires managers of budget

centres to be made responsible for the achievement of budget targets

for the operations under their personal control.

 Provides a basis for performance appraisal (variance analysis). A

budget is basically a yardstick against which actual performance is

measured and assessed. Control is provided by comparisons of actual

results against budget plan. Departures from budget can then be

investigated and the reasons for the differences can be divided into

controllable and non-controllable factors.

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 Enables remedial action to be taken as variances emerge.

 Motivates employees by participating in the setting of budgets.

 Improves the allocation of scarce resources.

 Economises management time by using the management by

exception principle.

2.11 PROBLEMS IN BUDGETING

Whilst budgets may be an essential part of any marketing activity they

do have a number of disadvantages, particularly in perception terms.

 Budgets can be seen as pressure devices imposed by management,

thus resulting in:

a) bad labour relations

b) inaccurate record-keeping.

 Departmental conflict arises due to:

a) disputes over resource allocation

b) departments blaming each other if targets are not attained.

 It is difficult to reconcile personal/individual and corporate goals.

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 Waste may arise as managers adopt the view, "we had better spend

it or we will lose it". This is often coupled with "empire building" in

order to enhance the prestige of a department.

Responsibility versus controlling, i.e. some costs are under the

influence of more than one person, e.g. power costs.

 Managers may overestimate costs so that they will not be blamed in

the future should they overspend.

2.12 CHARACTERISTICS OF A BUDGET

A good budget is characterised by the following:

 Participation: involve as many people as possible in drawing up a

budget.

 Comprehensiveness: embrace the whole organisation.

 Standards: base it on established standards of performance.

 Flexibility: allow for changing circumstances.

 Feedback: constantly monitor performance.

 Analysis of costs and revenues: this can be done on the basis of

product lines, departments or cost centres.

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2.13 BUDGET ORGANISATION AND ADMINISTRATION:

In organising and administering a budget system the following

characteristics may apply:

a) Budget centres: Units responsible for the preparation of budgets. A

budget centre may encompass several cost centres.

b) Budget committee: This may consist of senior members of the

organisation, e.g. departmental heads and executives (with the

managing director as chairman). Every part of the organisation should

be represented on the committee, so there should be a representative

from sales, production, marketing and so on. Functions of the budget

committee include:

 Coordination of the preparation of budgets, including the issue of a

manual

 Issuing of timetables for preparation of budgets

 Provision of information to assist budget preparations

 Comparison of actual results with budget and investigation of

variances.

c) Budget Officer: Controls the budget administration The job involves:

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 liaising between the budget committee and managers responsible

for budget preparation

 dealing with budgetary control problems

 ensuring that deadlines are met

 educating people about budgetary control.

d) Budget manual:

This document:

 charts the organisation

 details the budget procedures

 contains account codes for items of expenditure and revenue

 timetables the process

 clearly defines the responsibility of persons involved in the

budgeting system.

2.14 BUDGET PREPARATION

Firstly, determine the principal budget factor. This is also known as the

key budget factor or limiting budget factor and is the factor which will

limit the activities of an undertaking. This limits output, e.g. sales,

material or labour.

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a) Sales budget: this involves a realistic sales forecast. This is

prepared in units of each product and also in sales value. Methods of

sales forecasting include:

 sales force opinions

 market research

 statistical methods (correlation analysis and examination of trends)

 mathematical models.

In using these techniques consider:

 company's pricing policy

 general economic and political conditions

 changes in the population

 competition

 consumers' income and tastes

 advertising and other sales promotion techniques

 after sales service

 credit terms offered.

b) Production budget: expressed in quantitative terms only and is

geared to the sales budget. The production manager's duties include:

 analysis of plant utilisation

 work-in-progress budgets.
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If requirements exceed capacity he may:

 subcontract

 plan for overtime

 introduce shift work

 hire or buy additional machinery

 The materials purchases budget's both quantitative and financial.

c) Raw materials and purchasing budget:

 The materials usage budget is in quantities.

 The materials purchases budget is both quantitative and financial.

Factors influencing a) and b) include:

 production requirements

 planning stock levels

 storage space

 trends of material prices.

d) Labour budget: is both quantitative and financial. This is influenced

by:

 production requirements

 man-hours available

 grades of labour required


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 wage rates (union agreements)

 the need for incentives.

e) Cash budget: a cash plan for a defined period of time. It

summarises monthly receipts and payments. Hence, it highlights

monthly surpluses and deficits of actual cash. Its main uses are:

 to maintain control over a firm's cash requirements, e.g. stock and

debtors

 to enable a firm to take precautionary measures and arrange in

advance for investment and loan facilities whenever cash surpluses or

deficits arises

 to show the feasibility of management's plans in cash terms

 to illustrate the financial impact of changes in management policy,

e.g. change of credit terms offered to customers.

Receipts of cash may come from one of the following:

 cash sales

 payments by debtors

 the sale of fixed assets

 the issue of new shares

 the receipt of interest and dividends from investments.


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Payments of cash may be for one or more of the following:

 purchase of stocks

 payments of wages or other expenses

 purchase of capital items

 payment of interest, dividends or taxation.

Steps in preparing a cash budget

i) Step 1: set out a pro forma cash budget month by month. Below is a suggested layout.

Month 1 Month 2 Month 3


N N N
Cash receipts
Receipts from debtors
Sales of capital items
Loans received
Proceeds from share issues
Any other cash receipts
Cash payments
Payments to creditors
Wages and salaries
Loan repayments
Capital expenditure
Taxation
Dividends
Any other cash expenditure
Receipts less payments
Opening cash balance b/f W X Y
Closing cash balance c/f X Y Z

ii) Step 2: sort out cash receipts from debtors

iii) Step 3: other income

iv) Step 4: sort out cash payments to suppliers

v) Step 5: establish other cash payments in the month

Figure 4.1 shows the composition of a master budget analysis.

Figure 2.1 Composition of a master budget


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OPERATING BUDGET FINANCIAL BUDGET
consists of:- consists of
Budget P/L acc: get: Cash budget
Production budget Balance sheet
Materials budget Funds statement
Labour budget
Admin. budget
Stocks budget

f) Other budgets that could be prepared:

These include budgets for:

• administration
• research and development
• selling and distribution expenses
• capital expenditures
• working capital (debtors and creditors).

An example

A sugar cane farm in owned and operated by Delatre Bazon Nig. Ltd. devised an
operating budget as follows:

• Cultivation
• Irrigation
• Field maintenance
• Harvesting
• Transportation.

With each operation, there will be costs for labour, materials and machinery usage.
Therefore, for e.g. harvesting, these may include four resources, namely:

• Labour:
-cutting
-sundry

• Tractors
• Cane trailers
• Implements and sundries.

Having identified cost centres, the next step will be to make a quantitative calculation of

the resources to be used, and to further break this down to shorter periods, say, one

month or three months. The length of period chosen is important in that the shorter it is,

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the greater the control that can be exercised by the budget but the greater the expense

in preparation of the budget and reporting of any variances.

The quantitative budget for harvesting may be calculated as shown in figure 2.2.

Figure 4.2 Quantitative harvesting budget

Harvesting 1st quarter 2nd quarter 3rd quarter 4th quarter


Labour
Cutting nil 9,000 tonnes 16,000 tonnes 10,000 tonnes
Sundry nil 300 man days 450 man days 450 man days
Tractors nil 630 hours 1,100 hours 700 hours
Cane trailers nil 9,000 tonnes 16,000 tonnes 10,000 tonnes
Imp, & sundries nil 9,000 tonnes 16,000 tonnes 10,000 tonnes

Each item is measured in different quantitative units - tonnes of cane, man days etc.-and
depends on individual judgement of which is the best unit to use.

Once the budget in quantitative terms has been prepared, unit costs can then be
allocated to the individual items to arrive at a budget for harvesting in financial terms as
shown in table 2.2.

Charge out costs

In table 2.2 tractors have a unit cost of N7.50 per hour - machines like tractors have a

whole range of costs like fuel and oil, repairs and maintenance, driver, licence, road tax

and insurance and depreciation. Some of the costs are fixed, e.g. depreciation and

insurance, whereas some vary directly with use of the tractor, e.g. fuel and oil. Other

costs such as repairs are unpredictable and may be very high or low - an estimated

figure based on past experience.

Figure 2.3 Harvesting cost budget

Item harvesting Unit cost 1st quarter 2nd quarter 3rd quarter 4th quarter Total
Labour
Cutting N0.75 per tonne - 6,750 12,000 7,500 26,250

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Sundry N2.50 per day - 750 1,125 1,125 3,000
Tractors N7.50 per hour - 4,725 8,250 5,250 18,225
Cane Trailers N0.15 per tonne - 1,350 2,400 1,500 5,250
Imp. & sundries N0.25 per tonne - 2,250 4,000 2,500 8,750
- N15,825 N27,775 N17,875 N61,475

So, overall operating cost of the tractor for the year may be budgeted as shown in figure
2.4.

If the tractor is used for more than 1,000 hours then there will be an over-recovery on its
operational costs and if used for less than 1,000 hours there will be under-recovery, i.e.
in the first instance making an internal 'profit' and in the second a 'loss'.

Figure 2.4 Tractor costs

Unit rate Cost per annum (1,000 hours)


(N) (N)
Fixed costs Depreciation 2,000.00 2,000.00
Licence and insurance 200.00 200.00
Driver 100.00 per month 1,200.00
Repairs 600.00 per annum 600.00
Variable costs Fuel and oil 2.00 per hour 2,000.00
Maintenance 3.00 per 200 hours 1,500.00
7,500.00
No. of hours used 1,000.00
Cost per hour 7.50

Master budget

The master budget for the sugar cane farm may be as shown in figure 2.5. The budget
represents an overall objective for the farm for the whole year ahead, expressed in
financial terms.

Table 2.5 Operating budget for sugar cane farm 19X4

1st quarter 2nd quarter 3rd quarter 4th quarter Total $


Revenue from cane 130,000 250,000 120,000 500,000
Less: Costs
Cultivation 37,261 48,268 42,368 55,416 183,313
Irrigation 7,278 15,297 18,473 11,329 52,377
Field maintenance 4,826 12,923 15,991 7,262 41,002
Harvesting - 15,825 27,775 17,875 61,475
Transportation - 14,100 24,750 15,750 54,600

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49,365 106,413 129,357 107,632 392,767
Add: Opening valuation 85,800 135,165 112,240 94,260 85,800
135,165 241,578 241,597 201,892 478,567
Less: Closing valuation 135,165 112,240 94,260 90,290 90,290
Net crop cost - 129,338 147,337 111,602 388,277
Gross surplus - 66,200 102,663 8,398 111,723
Less: Overheads 5,876 7,361 7,486 5,321 26,044
Net profitless) (5,876) (6,699) 95,177 3,077 85,679

Once the operating budget has been prepared, two further budgets can be done,
namely:

i. Balance sheet at the end of the year.

ii. Cash flow budget which shows the amount of cash necessary to support the operating

budget. It is of great importance that the business has sufficient funds to support the

planned operational budget.

Reporting back

During the year the management accountant will prepare statements, as quickly as

possible after each operating period, in our example, each quarter, setting out the actual

operating costs against the budgeted costs. This statement will calculate the difference

between the 'budgeted' and the 'actual' cost, which is called the 'variance'.

There are many ways in which management accounts can be prepared. To continue

with our example of harvesting on the sugar cane farm, management accounts at the

end of the third quarter can be presented as shown in figure 2.6.

Figure 2.6 Management accounts - actual costs against budget costs Management
accounts for sugar cane farm 3rd quarter 20XX

3rd quarter Year to date


Actual Budget Variance Actual Budget Variance
Item Harvesting
Labour

36
- Cutting 12,200 12,000 (200) 19,060 18,750 (310)
- Sundry 742 1,125 383 1,584 1,875 291
Tractors 9,375 8,250 (1,125) 13,500 12,975 (525)
Cane trailers 1,678 2,400 722 2,505 3,750 1,245
Imp & sundries 4,270 4,000 (270) 6,513 6,250 (263)
28,265 27,775 (490) 43,162 43,600 438

Here, actual harvesting costs for the 3rd quarter are N28,265 against a budget of

N27,775 indicating an increase of N490 whilst the cumulative figure for the year

to date shows an overall saving of N438. It appears that actual costs are less

than budgeted costs, so the harvesting operations are proceeding within the

budget set and satisfactory. However, a further look may reveal that this may not

be the case. The budget was based on a cane tonnage cut of 16,000 tonnes in

the 3rd quarter and a cumulative tonnage of 25,000. If these tonnages have been

achieved then the statement will be satisfactory. If the actual production was

much higher than budgeted then these costs represent a very considerable

saving, even though only a marginal saving is shown by the variance. Similarly, if

the actual tonnage was significantly less than budgeted, then what is indicated as

a marginal saving in the variance may, in fact, be a considerable overspending.

Price and quantity variances

Just to state that there is a variance on a particular item of expenditure does not

really mean a lot. Most costs are composed of two elements - the quantity used

and the price per unit. A variance between the actual cost of an item and its

budgeted cost may be due to one or both of these factors. Apparent similarity

37
between budgeted and actual costs may hide significant compensating variances

between price and usage.

For example, say it is budgeted to take 300 man days at N3.00 per man day -

giving a total budgeted cost of N900.00. The actual cost on completion was

N875.00, showing a saving of N25.00. Further investigations may reveal that the

job took 250 man days at a daily rate of N.50 - a favourable usage variance but a

very unfavourable price variance. Management may therefore need to investigate

some significant variances revealed by further analysis, which a comparison of

the total costs would not have revealed. Price and usage variances for major

items of expense are discussed below.

Labour

The difference between actual labour costs and budgeted or standard labour

costs is known as direct wages variance. This variance may arise due to a

difference in the amount of labour used or the price per unit of labour, i.e. the

wage rate. The direct wages variance can be split into:

i) Wage rate variance: the wage rate was higher or lower than budgeted, e.g.

using more unskilled labour, or working overtime at a higher rate.

ii) Labour efficiency variance: arises when the actual time spent on a particular

job is higher or lower than the standard labour hours specified, e.g. breakdown of

a machine.

38
Materials

The variance for materials cost could also be split into price and usage elements:

i) Material price variance: arises when the actual unit price is greater or lower

than budgeted. Could be due to inflation, discounts, alternative suppliers etc.

ii) Material quantity variance: arises when the actual amount of material used is

greater or lower than the amount specified in the budget, e.g. a budgeted

fertiliser at 350 kg per hectare may be increased or decreased when the actual

fertiliser is applied, giving rise to a usage variance.

Overheads

Again, overhead variance can be split into:

i) Overhead volume variance: where overheads are taken into the cost centres, a

production higher or lower than budgeted will cause an over-or under-absorption

of overheads.

ii) Overhead expenditure variance: where the actual overhead expenditure is

higher or lower than that budgeted for the level of output actually produced.

2.15 ZERO BASE BUDGETING (ZBB)

After a budgeting system has been in operation for some time, there is

a tendency for next year's budget to be justified by reference to the


39
actual levels being achieved at present. In fact this is part of the

financial analysis discussed so far, but the proper analysis process

takes into account all the changes which should affect the future

activities of the company. Even using such an analytical base, some

businesses find that historical comparisons, and particularly the

current level of constraints on resources, can inhibit really innovative

changes in budgets. This can cause a severe handicap for the business

because the budget should be the first year of the long range plan.

Thus, if changes are not started in the budget period, it will be difficult

for the business to make the progress necessary to achieve longer

term objectives.

One way of breaking out of this cyclical budgeting problem is to go

back to basics and develop the budget from an assumption of no

existing resources (that is, a zero base). This means all resources will

have to be justified and the chosen way of achieving any specified

objectives will have to be compared with the alternatives. For

example, in the sales area, the current existing field sales force will be

ignored, and the optimum way of achieving the sales objectives in that

particular market for the particular goods or services should be

developed. This might not include any field sales force, or a different-

sized team, and the company then has to plan how to implement this

new strategy.
40
The obvious problem of this zero-base budgeting process is the

massive amount of managerial time needed to carry out the exercise.

Hence, some companies carry out the full process every five years, but

in that year the business can almost grind to a halt. Thus, an

alternative way is to look in depth at one area of the business each

year on a rolling basis, so that each sector does a zero base budget

every five years or so.

2.16 BUDGET PROCESSES AND HUMAN BEHAVIOR

BUDGET COMMITTEE: A comprehensive budget usually involves all segments

of a business. As a result, representatives from each unit are typically included

throughout the process. The process is likely to be spearheaded by a budget

committee consisting of senior level personnel. Such individuals bring valuable

insights about all aspects of sales, production, and other phases of operations.

Not only are these individuals ideally positioned to provide the best possible

information relative to their respective units, they also need to be present to

effectively advocate for the opportunities and resource needs within their unit.

The budget committee's work is not necessarily complete once the budget

document is prepared and approved. A remaining responsibility for many

committees is to continually monitor progress against the budget, and potentially

recommend mid-course corrections. The budget committee's decisions can

greatly impact the fate of specific business units, in terms of resources made

available as well as setting the benchmarks that will be used to assess

41
performance. As a result, members of the budget committee will generally take

their task very seriously.

BUDGET CONSTRUCTION: The budget construction process will normally

follow the organizational chart. Each component of the entity will be involved in

preparing budget information relative to its unit. This information is successively

compiled together as it is passed up through the organization until an overall

budget plan is achieved. But, beyond the data compilation, there is critical

difference in how budgets are actually developed among different organizations.

Some entities follow a top-down, or mandated approach. Others utilize a bottom-

up, or participative philosophy.

42
MANDATED BUDGETS: Some entities will follow a top-down

mandated approach to budgeting. These budgets will begin with

upper level management establishing parameters under which the

budget is to be prepared. These parameters can be general or

specific. They can cover sales goals, expenditure levels, guidelines

for compensation, and more. Lower-level personnel have very little

input in setting the overall goals of the organization. The upper-level

executives call the shots, and lower-level units are essentially

43
reduced to doing the basic budget calculations consistent with

directives. Mid-level executives may color the budget process by

refining the leadership directives as the budget information is passed

down through the organization.

One disadvantage of the top-down approach is that lower-level

managers may view the budget as a dictatorial standard.

Resentment can be fostered in such an environment. Further, such

budgets can sometimes provide ethical challenges, as lower-level

managers may find themselves put in a position of ever-reaching to

attain unrealistic targets for their units.

On the positive side, top-down budgets can set a tone for the

organization. They signal expected sales and production activity that

the organization is supposed to reach. Some of the most efficient and

successful organizations have a hallmark strategy of being “lean and

mean.” The budget is a most effective communication device in

getting employees to hear the message and perform accordingly.

44
PARTICIPATIVE BUDGETS: The bottom-up participative approach is driven by

involving lower-level employees in the budget development process. Top

management may initiate the budget process with general budget guidelines, but

it is the lower-level units that drive the development of budgets for their units.

These individual budgets are then grouped and regrouped to form a divisional

budget with mid-level executives adding their input along the way. Eventually top

management and the budget committee will receive the overall plan. As you

might suspect, the budget committee must then review the budget components

for consistency and coordination. This may require several iterations of passing

the budget back down the ladder for revision by lower units. Ultimately, a final

budget is reached.

The participative budget approach is viewed as self-imposed. As a result, it is

argued that it improves employee morale and job satisfaction. It fosters the

"team-based" management philosophy that has proven to be very effective for

45
modern organizations. Furthermore, the budget is prepared by those who have

the best knowledge of their own specific areas of operation. This should allow for

a more accurate budget; in any event, it certainly removes one of the primary

excuses that is used to explain why a particular budget was not met!

On the negative side of the equation, a bottom-up approach is generally more

time consuming and expensive to develop and administer. This occurs because

of the iterative process needed for its development and coordination. Another

potential shortcoming has to do with the fact that some managers may try to

"pad" their budget, giving them more room for mistakes and inefficiency. More

will be said about this problem shortly, but it is particularly problematic with a

highly participative approach.

BLENDED APPROACH: Theoretically the budget process can be portrayed as

top-down or bottom-up. But, the reality is that most budgets are prepared with a

blended approach where information is passed both ways.

ORGANIZATIONAL STRUCTURE CONSIDERATIONS: It is very important for

managers at all levels to understand how information is transformed as it passes

through an organization. Review the preceding graphics, this time noting how

the top-down arrows change from yellow to pink as they pass through the middle-

level leadership. Conversely, the arrows in the bottom-up approach morph from

green to pink as they pass through the middle-level managers. As budget

information is transferred up and down an organization, the “message” will

inevitably be influenced by the beliefs and preferences of the communicators.

46
There is always a chance that information can be so transformed as to lose its

original intent. Top management can lose touch with information originating on

the front line, and front-line employees may not always get a clear picture of the

goals and objectives originating with senior management.

FLATTENING THE ORGANIZATION CHART: There are staggering differences

in the organization charts of different entities. Business growth is a natural

incubator for expansion of the number of levels within an organization; as a

result, great care must be taken to preserve the efficiency and effectiveness of

growing entities. Sometimes the very attributes that contribute to growth can be

undone by the growth itself. The charts of some entities consume many pages

and involve potentially dozens of "levels." Other companies may have worked to

"flatten" their organizational chart to minimize the number of links in the chain of

command. While these endeavors are often seen as attempts to reduce the cost

of middle-level management, the overriding issue is to allow top management

more clear and direct access to vital information originating with front-line

employees (and vice versa). In addition to focusing on revenues and costs, the

budget process should also be taken as an opportunity for continuous monitoring

of the organizational structure of an entity.

BUDGET ESTIMATION: One thing is sure, no one can see the future. And,

budgets clearly involve a good deal of forward looking prognostication. As a

result, a certain amount of error is inevitable. Accordingly, it is easy to slip into a

trap of becoming cavalier about the estimates that form the basis for a budget.

47
This should be avoided. Budget estimates should be given careful

consideration. They should have a basis in reason and logically be expected to

occur. Haphazardness should be replaced by study and statistical evaluation of

historical information, as this provides a good starting point for predictions.

Changing economic conditions and trends need to be carefully evaluated.

SLACK AND PADDING: Because budgets frequently form an important part of

performance evaluation, human behavior suggests that participants in the budget

process are going to try to create "breathing room" for themselves by

overestimating expenses and underestimating sales. This deliberate effort to

affect the budget is known as creating "budget slack" or "padding the budget."

This is done in an attempt to create an environment where budgeted goals are

met or exceeded. However, this does little to advance the goals of the

organization.

When slack is introduced into a budget, employees may fail to maximize sales

and minimize costs. For example, once it is clear that budgeted sales goals will

be met, there may be a reduction in incentive to push ahead. In fact, there may

be some concern about beating sales goals within a period for fear that a new

higher benchmark will be established that must be exceeded in a subsequent

period. This can result in a natural desire to push pending transactions to future

periods. Likewise, padding the planned level of expenses can actually provide

incentive to overspend, as managers fear losing money in subsequent budgets if

48
they don't spend all of the currently budgeted funds. This has the undesirable

consequence of encouraging waste.

THE IMPOSSIBLE BUDGET AND EMPLOYEE CAPITULATION: At the

opposite end of budgetary slack is the phenomena of unattainable budget

standards. If employees feel that budgets are not possibly achievable, they may

become frustrated or disenchanted. Such a condition may actually reduce

employee performance and morale. Good managers should be as alert to this

problem as they are to budgetary slack. Suffice it to say that preparing a budget

involves more than just number crunching; there is a fair amount of

organizational psychology that a good manager must take into account in the

process.

2.17 COMPONENTS OF THE BUDGET

MASTER BUDGET: Business processes are highly complex and require

considerable effort to coordinate. Managers frequently cite coordination as one

of the greatest leadership challenges. The comprehensive or "master" budget is

an essential part of the coordinating effort. Such budgets consist of many

individual building blocks that are tied together in logical harmony, and reflect the

financial plan for the entire organization. Careful articulation is essential.

The starting point for the master budget is an assessment of anticipated sales via

the sales budget. The expected sales level drives both the production plans and

the selling, general, and administrative budget. Production drives the need for
49
materials and labor. Factory overhead may be applied based on labor, but it is

ultimately driven by overall production. The upper portion of the following graphic

is a simplified illustration of these budget building blocks. Notice that the

background colors of each block reflect dependency on another budget

The lower portion of the preceding graphic illustrates that the planned business

activities must be considered in terms of their cash flow and financial statement

impacts. It is quite easy to plan production that can outstrip the resources of a

company. In addition, a business should develop plans that have a successful

outcome; the budgeted financial statements are key measures of that objective.

It would be very easy to expand the above to reflect additional interactions and

budgets (e.g., the coordination of a long-term capital spending budget).

However, the graphic would start to resemble the organization chart that was

steamrolled earlier in this chapter. Little educational value would be derived by

such a complex illustration. Instead, the point is to make it clear that

comprehensive budgeting entails coordination and interconnection of various

components. Next is a detailed illustration showing how these budget concepts

are put into operation.

50
51
SALES BUDGET: The budgeting process usually begins with a sales budget.

The sales budget reflects forecasted sales volume and is influenced by previous

sales patterns, current and expected economic conditions, activities of

competitors, and so forth. The sales budget is complimented by an analysis of

the resulting expected cash collections. Sales often occur on account, so there

can be a delay between the time of a sale and the actual conversion of the

52
transaction to cash. For the budget to be useful, careful consideration must also

be given to the timing and pattern of cash collections.

2.18 BUDGETARY CONTROL QUESTIONAIR

Prepared by……
Date………..
Reviewed by……
Date…………
BUDGETARY CONTROL
INTERNAL CONTROL QUESTIONAIR
Questions Yes No N/A COMMENTS

Planning

• Is there a requirement to

meet financial targets in the

business plan?

• Does the plan include a


budget?
• Is the budget aligned with
the
risk management plan?
• Is there a contingency
plan in place to deal with
deficits?

Responsibility
• Are budgetary responsibilities
established?
• Are staff aware of their
responsibilities?
• How often is responsibility
reviewed?
Budget Setting
-When has the budget been
approved?
- By whom?

53
- Is this before the start of the
financial year?
-How has the budget been
drawn up?
-By whom?
- Are budget holders involved in
the setting of the budget?
-Who reviews each budget?
Is this member of staff at a
senior level?
-Are there guidelines on how
requests for capital expenditure
should be submitted?
-Who produced the guidelines?
-Who analyzes and reviews the
business case requests for
capital expenditure?
-Is a reconciliation undertaken of
income and expenditure to items
appearing on the general
ledger?
-Does income and expenditure
appear on the budget
statements?
Information

-Are budget holders satisfied


with information?
-How often is information sent to
budget holders?
-Is a standard report format
used?

Variances
-Is there a formal virement
policy?
-Is there a requirement for
budget holders to formally
account for variances?
-Are variations in income and
expenditure reported to budget
holders and the board?
-Who actions the variations and
does the Board take account of
this?

54
Management Information

-Is there a set form of budgetary


report, which goes to the Board?
-Are figures reported to the
-Board reconciled to that in the
budgetary information passed to
the budget holder?

2.19 DEFINITION OF RELATED TERMS

Budget Holder
A person who has been delegated a budget, in writing, for which they are personally
responsible

Budget Manager
A person appointed by the budget holder to manage the budget on their behalf

Budgets
A financial plan covering expenditure and income. It incorporates a set amount of
funds, net of any income, to deliver a specific set of aims and objectives.

Forecasts
Predicted income and expenditure, split over periods of the financial year, based upon
known, or expected activity. The forecast gives an indication as to the financial position
at the year end.

Virement
The act of transferring budgets. Virement is subject to strict Treasury controls when
moved between Administration, Programme and Capital Subheads. Movement within a
subhead it permitted

CHAPTER THREE

RESEARCH METHODS AND


PROCEDURES

55
3.1 RESEARCH DESIGN

The research method selected for the study is a

combination of a survey and an industrial study. The

survey research method is described hereunder that:

(i) It is a design in which primary data is gathered from

members of the sample that represents a specific

population;

(ii) It is a design in which a structure and systematic

research instrument like a questionnaire or an interview

schedule is utilized together with the primary data;

(ii) It is a method in which the researcher manipulates no

explanatory variables because they have already

occurred and so they cannot be manipulated;

(iii) Data are got directly from the subjects;

The subjects give the data the natural settings of their

workplaces;

(iv) The answers of the respondents are assumed to

be largely unaffected of the content in which they are

brought;
56
(v) The impacts of the confounding factors are “controlled”

statistically; and

(vi) The aim of the research may span from the

exploration phenomena to hypotheses testing (stone

1995).

The survey research method has some merit, which are

to be articulated hereunder: In the survey research

method, the sample of the respondents are selected in

such a way as to make it low due to the utilization of

big sample sizes, which results in generally low sample

errors.

The survey research method also has the merit that

data collection takes place in the “natural” settings of

the workplace rather than an activated laboratory. Data

are got directly from the respondents. The advantage

that the survey yields data that suggests new

hypothesis is very illuminating. There is also the merit

57
that a set of systematic data collection instruments

such as questionnaire interview schedules and

observation gadgets can either be used alone or in

conjunction with other instruments (stone, 1995).

3.2 Sampling

Spiegel (1992) observes that sampling theory is a

study of the relationship existing between a population

or universe and the samples drawn from it. The

population in this study is from the senior junior staff of

the firms. In order to make conclusions of sample

theory and statistical references to be valid, a sample

must be selected as to be representative of the

population (Spiegel,1992). One way in which a

representative sample may be got, is by the process of

stratified random sampling. In this research work, the

technique of simple random sampling is used to select

the sample of 100 respondents from each group of the

personnel, making a total sample size of 200.

58
The list of all senior and junior staff of the firm is from

the personnel department of the company. The

numbers were written on a piece of paper, put in a

basket and the papers were folded to cover the

numbers and one of the pieces of paper was selected at

a time without replacing it and any name corresponding

to the number becomes a number of the sample. This

method of sampling without replacement was done

until the sample of 100 respondents per group of

personnel was arrived at.

3.3 Population

The population, in this study is the totality of the senior

and junior staff of DELATRE BAZON NIG. LTD. WARRI.

The sample size is 200 and this number of respondents

was chosen from the population. The rationale for

studying a sample rather than the population includes

that:

59
1. Most empirical research work in the social

science involves studying a sample in place of the

population.

2. Statistical Laws reveal that statistics composed

from the sample data are usually reasonably accurate.

3. Luckily, it is usually possible to estimate the

level of confidence that can be placed on the results.

We should note that above is only possible if the

probability sample size is large enough.

3.4 Data Collection

Questionnaire

As earlier stated, the primary data collection

instrument in this study is the questionnaire. In the

questionnaire method of primary data collection, heavy

dependence is placed on verbal reports from the

subjects to get information on the earnings per share

and standard set.

60
The questionnaire has a lot of merits. It needs less skill

to administer. Questionnaire can be administered to a

big number of individuals at the same time. Also with a

specific research budget, it is usually possible to cover

a broader area. The impersonal nature of a

questionnaire, its structure and standardized wording,

its order of question, its standardized instructions for

recording answers might make one to conclude that it

offers some uniformity from one measurement occasion

to another (Selltiz et al, 1976).

Another merit of questionnaire is that subjects may

have a bigger confidence in their anonymity, and thus

feel freer to express views they feel might be

disapproved.

Another attribute of the questionnaire that is

sometimes, though not always desirable is that it might

place less pressure on the subjects for immediate

response (Selltiz et al, 1976).

61
The questionnaire also has some demerits. It has noted

that for purpose of giving dependable responses to a

questionnaire, respondents must be considerably

educated. Thus one of the demerits of the usual

questionnaire is that it is appropriate only for with a

considerable amount of education. There is also

demerit that subject may be reluctant and unable.

To report on the particular subject matter. Also, if a

subject misinterprets a question or give his or her

answer in a batting manner, there is often a little that

can be done to ameliorate the situation. In a

questionnaire, the information the researcher gets is

limited to the fixed alternative answer format, when a

specific answer is not available, it can lead to error

(Selltiz, 1976).

There is also limitation of memory in reporting on past

facts. The researcher is not a policeman that can

compel answers. That is, the information may not be

readily accessible to subject and thus the subject may

62
be reluctant to put forth enough alternative information

that he or she is only barely conscious of (Selltiz et al,

1996).

In this research project, a structured and undisguised

questionnaire is utilized which is made up of two parts

namely, the personal data section and the section on

the data on the actual subject matter of the work. The

questionnaire was undisguised in the sense that the

purpose of the data collection which was to collect

primary data for writing up the researcher’s ND project

was made know to the 200 respondents. The

questionnaire was structured in the sense the questions

are logically sequenced and are to be asked to the

respondents in the same manner and no follow up

questions are to be allowed. Some of the questions are

of the fixed alternative answer format type.

Ten (10) of the questions have yes or no answers,

63
Ten (10) of the questions have alternative answer for

the respondents to tick.

The structured questionnaire has the merit that it yields

data that is easier to analysis than data produced by an

unstructured questionnaire. Also the structured nature

diminishes both researcher’s and research instrument

biases. It however has the demerit that the rigidity of

the research instrument diminishes the amount of

information that could be got.

Interview

The method of communication of the research

instrument is by means of the personal interview. The

method has the merit that it produces a better sample

of the population than either mail or the telephone

methods. It also has the merit that it gives a very high

completion and response rates. It has the merit that

the interview has a bigger sensitively

misunderstandings by the respondents and gives a

chance for clarification of misunderstood questions. It

64
has the merit that it is a very feasible method (Selltiz

et al, 1976). The personal interview method has the

demerit that it is more costly than the mail or the

telephone methods of communication of a

questionnaire.

Observations

In addition to questionnaire and face-to face

interviews, observation was also carried out. This was

to enable the researcher to witness by herself the

officers of this firm and to interact with these people.

3.5 Field Work

The researcher and three other field data collectors did

the fieldwork. The field data collectors were other

classmates also offering the full-time ND program, who

have also offered research methodology. They had no

problem gaining entrance into the office under

consideration since one of them has a friend working

there. They were to be trained by the researcher on

65
how to greet the respondents and how to tick the

questionnaire correctly and honestly.

3.6 Description of Data Presentation and Analysis

Tools

The data presentation tools are simple bar charts,

histograms, and pictorial tables. The most important

parts of a table include;

(a) Table numbers

(b) Title of the table

(c) Caption

(d) Stub or the designation of the rows and columns

(e) The body of the table.

(f) The head note or prefatory note or explanatory just

before the title.

(g) Source note, which refers to the literally or scientific

source of the table (Mills and Walter 1995)

Anyiwe (1994) has observed that a table has the

following merits over a prose information that;

(f) A table ensure an easy location of the required figure;

66
(g) Comparisons are easily made utilizing a table than a

prose information;

(h) Patterns or trends within the figures which cannot be

visualized in the prose information can be revealed and

better depicted by a table; and

A table is more concise and takes up a less space than

a prose formation:

The data is to be analysed by means of percentage,

cross tabulation and the chi-square test of population

proportions for testing the two hypothesis. Percentages

express the ratio of two sets of data to a common base

of 100. the researcher made us of the computer

program called SPSS (statistical package for social

science) to carry out the computation of the hypothesis

testing.

3.7 limitation of The Study

67
Research work is subject to one form of limitation or

the other, mine is not an exemption.

It was the initial thought of the researcher that the

exercise was easy but the contrary was the case. As a

student, several academic demands compete with the

limited but precious time available.

This implies that none of the competing exercise could

be effectively handled without the others being worse

off.

This was my situation. Although the time expended was

too small to do justice to the study. The opportunity

cost in terms of other equally important activities

forgone or cursorily attended to, was made.

The researcher faces some embarrassment arising from

low-level educated staff who could not understand the

essence of the research work as this.

CHAPTER FOUR
68
DATA PRESENTATION
AND ANALYSIS

4.1 INTRODUCTION

In the previous chapter, the research methods and

procedures have been handled. In this chapter the data

presentation and analysis are to be done. The data is to

be presented by means of tables, two simple bar

charts, one histogram and one pie chart to make it

amenable for further analysis. By analysis is meant the

act of noting relationship and aggregating the set of

variables with similar attributes and also breaking the

unit of their components (Mills and Walters 1995).

In this research work, the research accepts the

contention of Podsakoff and Dalton (1995) that the

factual information from the data can be used as a

basis for reasoning, calculation and discussion.

Apart from the heading above, the other headings in

this chapter includes:

69
Data Presentation,

Percentage analysis

Cross-tabulated analysis

Hypothesis testing

4.2 DATA PRESENTATION

TABLE1

70
THE SUMMARY OF THE PERSONAL DATA OF THE
RESPONDENTS

1 SEX FREQUENCY
Male 150
Female 50
Total 200
2 Marital Status Angles
Married 130 suspended
Single 70 in degree
Total 200
3 AGE
21-30 years 90
31-40 years 90
41-50 years 10
51-60 years 10
Total 200
4 HIGHER
EDUCATIONAL
QUALIFICATION
DIPLOMA 10 18
OND 30 54
HND 80 144
FIRST DEGREE 20 36
SECOND DEGREE 40 32
NIM 20 36
TOTAL 200 360

The marital statuses of the 200 respondents it is found

that 130 of them are married while 70 of them are

single. For the ages of the 200 respondents they are 21-

71
30 years, 31-40 years, 51-60 years with frequency of 90

and 10 respectively. For the highest educational

qualification of the 200 respondents they are diploma,

OND, HND, First Degree, Second Degree, NIM. and they

have frequencies of 10, 30, 80, 20, 40 and 20

respectively.

Figure 4.1 below shows the simple bar chart of the data on

the sex of the respondents.

FIGURE 4.1: THE SIMPLE BAR CHART OF THE DATA ON THE


SEX OF THE RESPONDENTS

GENDER OF THE RESPONDENTS


160-

140-

120-

100-

80 -

60 -

40 -

20 -

0 -
MAIL FEMALE
GENDER OF THE RESPONDENTS

72
Frequency percentage Valid Cumulative
Percent Percent
MAIL 150 75.0 75.0 75.0
FEMALE 50 25.0 25.0 100.0
Total 200 100.0 100.0

Source: from data in table 1

From figure 4.1 above, it is shown that male

respondents have the modal frequency of 150 of the

200 respondents while the female respondents have

the frequency of 50 of them.

Figure 4.2 below shows the simple bar chart of the data

on the marital statuses of the respondents.

FIGURE 4.2: THE SIMPLE BAR CHART OF THE DATA ON


THE MARITAL STATUSES OF THE RESPONDENTS
140

120 -

100 -

80 -
60 -
40 -
20 -
0 -

- 73
MARRIED SINGLE
MARITAL STATUS OF THE RESPONDENTS

Status frequency Percentage Valid Cumulative


Percent Percent
MARRIED 130 65.0 65.0 65.0
SINGLE 70 35.0 35.0 100.0
Total 200 100.0 100.0

From figure 4.2 above, it is shown that the married

respondents have the modal frequency of 130 out of the 200

respondents while the single respondents have the

frequency of 70 of them.

FIGURE 4.3: THE HISTOGRAM OF THE DATA ON THE AGES OF THE


RESPONDENTS.

AGES OF THE RESPONDENTS


100
80
60
40
20

Std. Dev = 78 Mean


= 1.7
0

N = 200.00
74
1.0 2.0 3.0 4.0

AGES OF THE RESPONDENTS

Categories Frequency Percentage Valid Cumulative


Percentage Percent
21 TO 30 90 45.0 45.0 45.0
YEARS
31 TO 40 90 45.0 45.0 90.0
YEARS
41 TO 50 10 5.0 5.0 95.0
YEARS
51 TO 60 10 5.0 5.0 100.0
YEARS
SOURCE: From the data in Table 1.
Total 200 100.0 100.0

From figure 4.3 above, it is shown that the age classes limit

are 20.5-30.5 years, 30.5-40.5 years, 40.5-50.5 years and

50.5-60.5 years with frequencies of 90, 90, 10, and 10 out

of 200 respectively. This shows that this is bi-modal

distribution as the age classes of 20.5-30.5 years and 30. 5-

40.5 years have a frequency of 10.

Figure 4.4 below shows the pie chart of the data on the

highest educational qualifications of the 200 respondents.

75
FIG.4.4 THE PIE CHART OF THE DATA ON THE HIGHEST
EDUCATIONAL QUALIFICATIONS OF THE
200 RESPONDENTS

NIM DIPLOMA

OND

5%
15%
SECOND DEGREE
10%

20%

40%
10%

EDUCATIONAL QUALIFICATION OF THE RESPONDENTS

Educational Frequency Percentage Valid Cumulative


level Percentage Percentage
DIPLOMA 10 5.0 5.0 5.0
OND 30 15.0 15.0 20.0
HND 80 40.0 40.0 60.0
FIRST 20 10.0 10.0 70.0
DEGREE
SECOND 40 20.0 20.0 90.0
DEGREE
NIM 20 10.0 10.0 100.0
Total 200 100.0 100.0

76
SOURCE: from the data in table 1.

From figure 4.4 above, the Highest Educational

Qualifications are Diploma, O.N.D, First Degree, Second

Degree and NIM and the sustained angles in degree is equal

to 180, 540, 1440, 360, 720 and 360 and respectively at the

center of the circle.

4.4 CROSS-TABULATED ANALYSIS

Table: 3 below show the analysis of the statuses of the 200

respondents

Cross- tabulation 1
DOES BUDGETARY CONTROL OPERATES IN VARIOUS COST
CENTRES AND DEPARTMENTS WITH EFFICIENCY AND
ECONOMY?
NO
YES NO DON’T ANSWER Total
10
KNOW 2
19
2 91
DIPLOMA 6 2 2
OND 19 7 19
HND
FIRST
14 31 9
40
DEGREE - 10 39 21
SECOND 40 18 200
DEGREE 21
NIM
Total 100 43 39

39 39

77
The above table shows that the total of 100

respondents (out of 200 said no. this proved that

electronic commerce can speed up economic

development.

Cross-tabulation 2

DOES BUDGETARY CONTROL HELPS IN ELIMINATING WASTES


AND RAISES THE PROFITABILITY POSITION OF
YES DON’T
A BUSINESS ENTERPRISE? NO
NO KNOW Total
DIPLOMA 10
ANSWER 10

OND 19 19
HND 14 30 47 91
FIRST
DEGREE 10 9 19
SECOND
DEGREE 40 40
NIM 21 21
Total 104 40 47 9 200

The above table indicates that electronic commerce can

make doing business more or less expensive. 104

respondents out of 200 said yes. While 40 did not

agree with the fact.

78
Chi-Square Test (1)

DOES BUDGETARY CONTROL OPERATES IN


VARIOUS COST CENTRES AND DEPARTMENTS
WITH EFFICIENCY AND ECONOMY?

Observed Expected Residual Decision


F F
YES 100 50.0 50.0 Accept
NO 43 50.0 -7.0 Reject
DON’T
KNOW 39 50.0 -11.0 Reject
NO
18 50.0 -32.0
ANSWER Reject
200
Total

Chi-Square Test (2)

DOES BUDGETARY CONTROL HELPS IN ELIMINATING


WASTES AND RAISES THE PROFITABILITY POSITION
OF A BUSINESS ENTERPRISE?

Observed Expected Residual Decision


F F
YES 104 50.0 54.0 Accept
NO 40 50.0 -10.0 Rejected
DON’T
KNOW 47 50.0 -3.0 Rejected
NO
9 50.0 -41.0
ANSWER Rejected
200
Total

Residuals

79
The observed value of the dependent variable minus

the value predicated by the regression equation, for

each case. Large absolute values for the residuals

indicate that the observed values are very different

from the predicted values.

SOURCE: From the questionnaires administered.

TEST STATISTICS

DOES BUDGETARY
DOES BUDGETARY CONTROL HELPS
CONTROL OPERATES IN ELIMINATING
IN VARIOUS COST WASTES AND
CENTRES AND RAISES THE
DEPARTMENTS WITH PROFITABILITY
EFFICIENCY AND POSITION OF A
ECONOMY? BUSINESS
ENTERPRISE?

Chi-Square 73.880 94.120


df 3 3

note: df = degree of freedom

ALTERNATIVE HYPOTHESIS

1. Does budgetary control operates in various cost


centres and departments with efficiency and economy?

80
Looking at the chi-square test 1 above, the computer

program of the observed number or frequency is 100,

expected number or frequency is 50 making Large

absolute value for the residual and from the statistics,

we have the chi-square of 73.880 at 3% degree of

freedom. We accept the hypothesis.

2. DOES BUDGETARY CONTROL HELPS IN ELIMINATING


WASTES AND RAISES THE PROFITABILITY POSITION
OF A BUSINESS ENTERPRISE?

The chi-square test 2 above, the computer program of

the observed number or frequency is 104, expected

number or frequency is 50 making Large absolute value

for the residual and from the test statistics, we have

the chi-square of 94.120 at 3% degree of freedom. We

accept the hypothesis.

NULL HYPOTHESIS

81
1. Budgetary control do not operate in various cost

centres and departments with efficiency and

economy.

Looking at the hypothesis 1 above, the computer

program of the observed number or frequency is

43, expected number or frequency is 50 making a

negative absolute value for the residual. We reject

the hypothesis.

2. Budgetary control does not help in eliminating

wastes and raises the profitability position of a business

enterprise.

On the chi-square test 2 above, the computer program

of the observed number or frequency is 40, expected

number or frequency is 50 making negative absolute

value for the residual so we reject the hypothesis.

82
CHAPTER FIVE

FINDINGS, SUMMARY AND

CONCLUSION

5.0 INTRODUCTION

In this chapter, the researcher deals with the findings

as regards anatomy of budget and budgetary control in

business organisation. The work is summarized with

the conclusion drawn

83
5.1 FINDINGS

During the research work, the researcher found out that………………..

Budgets can take many forms and serve many functions. Budgets can

provide the basis for detailed sales targets, staffing plans, inventory

production, cash investment/borrowing, capital expenditures (for plant

assets, etc.), and on and on. Budgets can provide benchmarks

against which to compare actual results and develop corrective

measures. Budgets give managers "preapproval" for execution of

spending plans. Budgets allow managers to provide forward looking

guidance to investors and creditors. Budgets are necessary to

convince banks and other lenders to extend credit. She also found out

that …..All budgets must be profiled across the financial year, and

must reflect the expected income or expenditure appropriate to the

periods within the financial year; Budgetary control is A control

technique whereby actual results are compared with budgets.

Budgetary control compels business administration to think about the

future.

5.2 SUMMARY

84
In summary, the researcher has been able to unveil the

purpose of budgeting as a means of….

-Providing a forecast of revenues and expenditures

-Enabling the actual financial operation of the business to be

measured against the forecast and also showed that

Budgets are valuable tools in good management. To plan,

monitor, control and adapt resources to meet agreed

business objectives whilst remaining within notified limits

management should consider

1. Potential Risks which are:..

• Inappropriate allocation of resources – failure to meet

business objectives

• Inability to adapt to unexpected events

• Poor decision-making

• Inadequate / inaccurate records

• Fraud/ Theft – financial loss

• Departmental embarrassment

• Business interruption

85
• Inefficient use of resources

And effect Possible Controls on:

• Delegation letters

• Forecasting

• Variance Analysis

• Business planning (including challenge – review plan /

planning process)

• Communication between Budget Holders and Budget

Managers

• Regular Finance Meetings.

• Use and dissemination of Phoenix reports.

• Training and guidance (including non-finance staff).

• Continuously challenging assumptions used in setting

plan.

• Area & Central Monitoring – up and down the line

• Exception reporting

• Process to capture and record information

• Consistent methodology –

• Standardisation of output
86
5.3 CONCLUSION

We need to know that many financial reporting frauds have

their genesis in overly optimistic budgets that subsequently

lead to an environment of "cooking the books" to reach

unrealistic goals. These events usually start small, with the

expectation that time will make up for a temporary problem.

To maintain organizational integrity, senior-level managers

need to be careful to provide realistic budget directives.

Lower-level managers need to be truthful in reporting "bad

news" relative to performance against a budget, even if they

find fault with the budget guidelines.

The formal budgeting system has the following major

benefits.

1. Budgeting due to its formal time table or schedule

compels managers to think ahead apart from taking care of

their current activities.

87
2. Budgeting, due to its approval and authorization by the

superiors, provides definite expectations that are the best

framework for judging subsequent performance.

3. Budgeting helps in coordinating the various departments

of the organization. The budget harmonizes the goals

(objectives) of the individual departments into the

organization wide goals (objectives).

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