Question

What are the advantages of budgetary control?

Answer 1

1. Definite planning:

Budgets are based on the well-defined plans. Budgets enable the different heads to know what is expected of them.They know the amount that they are entitled to spend and the income they are expected to earn. Thus, budgeting introduces an element of definiteness in planning.

2. Enhanced efficiency:

Budgeting is an effective way of controlling costs and eliminating wastage. It promotes economy and efficiency.

3. Proper communication:

Budgets are constructed taking into consideration feedback information supplied by lower levels of management. Every department frames its own budget in consultation with the departmental staff. Thus, it makes two-way communication in the organisation.
4. Control:

Budgets make management by exception possible. The comparison of actual and budgeted performance will show up weak spots where management attention is needed the most. Thus, budgeting is an important technique of control.

5. Co-ordination:

It promotes co-ordination between different departments or divisions of the enterprise. It facilitates centralised regulation of diversified operations. The budget committee acts as a coordinator of production, sales and other departments.

6. Delegation of authority:

Budgeting encourages delegation of authority. It fixes the limits within which delegated authority can be used. Subordinates and executives can exercise initiative and judgment within the budgetary limits.
7. Motivation:

Budgets act as a strong incentive to employees by fixing targets of performance.

8. Maximisation of profit:

It aims at the maximisation of profit of the enterprise. To achieve this aim planning and co- ordination of different functions is undertaken. There is control over costs, revenue and capital expenditures. The resources are put to optimum use.

9. Forecasting credit needs:

The budgets of cash expenditure and cash receipts make it possible for the financial manager to forecast their need for credit and arrange for it in advance.

10. Uniform policy:

The centralisation of budgetary control over all divisions and departments help in carrying out a uniform policy without the disadvantages of an authoritarian type of business organisation.

Answer 2

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