8 ADVANTAGES OF BUDGETARY CONTROL SYSTEM

 What is a Budget?

A budget refers to an estimated statement. It is prepared by companies as well as the government. It is for the purpose of attaining some goal.

8 ADVANTAGES OF BUDGETARY CONTROL SYSTEM

Budget can be defined as a financial and/or quantitative statement prepared and approved prior to a defined period of time of the policy to be pursued during that period for the purpose of attaining a given objective.

It may include income, expenditure, and employment of capital. It is often used for control purposes.

What is Budgetary Control?

It is a process in which a budget is set and the actual is compared with a budget to analyse variances.

It means the establishment of budgets relating the responsibilities of executives to the prerequisite of policy and the continuous evaluation of actual with budgeted results either to secure by individual action the objective of that policy or to provide a base for its revision.

Objectives of Budget

Planning:

A set of targets/goals is often essential to lead and focus on individual and group actions. Planning not only motivates the employees but also improves overall decision-making.

Directing:

Business is very complex and requires more formal direction and coordination. Once the budgets are in place they can be used to direct and coordinate operations in order to achieve the stated
targets.

Controlling:

The actual performance can be compared with the planned targets. This provides prompt feedback about performance. budget also prevents unplanned adhoc expenditure.

Advantages of Budgetary Control System

Enables the managers/ administrators to conduct activities in an efficient manner.

Provides a yardstick for measuring and evaluating the performance of individuals and their departments.

Reveals the deviations, from the budget by comparing with actuals; Helps in the prompt review process.

Creates suitable conditions for the implementation of a standard costing system.

Acts as a systematic base for framing future policies and targets.

Inculcates the feeling of cost-consciousness and goal orientation.

This leads to effective utilization of various resources, as the activities are planned and executed effectively

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