A PRESENTATION ON BUDGET NATURE & USES

PREPARED BY : MANISHA VAGHELA

MBA SEM-III
ROLL NO. : 3 (SFI)
SUBJECT : MANAGEMENT CONTROL SYSTEM
GUIDED BY : DR. VEDANT PANDYA

SUBMITTED TO :
DEPARTMENT OF BUSINESS ADMINISTRATION,
M.K. BHAVNAGAR UNIVERSITY

WHAT IS BUDGET?

Budgets are an important tool for effective short term

planning and control in organizations.
A budget is a quantitative expression of a plan for a defined
period of time. It may include planned sales volumes and
revenues, resource quantities, costs and expenses, assets,
liabilities and cash flows. It expresses strategic plans of
business units, organizations, activities or events in
measurable terms.
A budget (derived from old French word baguette, purse) is
a quantified financial plan for a forthcoming accounting
period.

NATURE OF BUDGET

It estimates the profit potential of the business unit.

It is stated in monetary terms, although the monetary
amounts may be backed up by nonmonetary amounts
It generally covers a period of one year

 It is a management commitment ; managers agree to

accept responsibility for attaining the budgeted objectives.
The budget proposal is reviewed and approved by an
authority higher than the budgetee.

 Once approved, the budget can be changed only under

specified conditions.
Periodically, actual financial performance is compared to
budget , and variances are analyzed and explained.

USES OF A BUDGET

1.) To fine tuning the strategic plan

The strategic plan has the characteristics:

It is prepared early in the year ,

It is developed on the basis of the best information available

at
that time ,

Its preparation involves relatively few managers, and

It is stated in fairly broad terms. the budget ,

Which is completed just prior to the beginning of the budget

year

Provides an opportunity to use the latest available information

and is based on the judgment of managers at all levels
throughout the organization .

2.) To help coordination

Every responsibility center manager in the organization

participate in the preparation of the budget .
When the pieces are assembled into an overall plan by the
staff, inconsistencies may be detected
the most common is the possibility that the plans of the
production organization are not consistent with the planned
sales volume , in total ,or in certain product lines .

3.) To assign responsibility

The approved budget should make clear what each

manager responsibility center managers to spend specified
amounts of is responsible for .
The budget also authorizes money for certain designated
purposes without seeking the approval of higher authority.

4.) To obtain a commitment that is a basis for

performance evaluation

The budget represents a commitment by the budgetee to

his or her supervisor.
It, therefore, represents a benchmark against which actual
performance can be judged.
The commitment is subject to change if the assumptions on
which it is based change, but it nevertheless is an excellent
starting point for performance appraisal.

BIBLIOGRAPHY

Book:
Robert N. Anthony, Vijay Govindarajan , Management
control System, 9th edition, Published by Tata McGraw Hill ,
Year 2000, p.p 373-376
Web:
en.m.wikipedia.org/wiki/budget