The very objective of budgetary control is the allocation of responsibility with budgeted figures and develops a basis for the measurement of performance to find the efficiency of business operation.
General objectives of budgetary control
The general objectives of the budgetary control are presented below:
1. Planning: A budget is a plan that is prepared before a definite period of time to attain given objective. The budgetary control compels the management at all levels to prepare the business activities to be performed in the days to come.
The reason is that a budget is prepared and implemented with the following objectives.
- A budget is prepared after careful study and research thereby proper guidance is given to the executives.
- A budget is used as mechanism through which management’s objectives and policies are affected.
- A budget is used as a communication bridge between the top management executives and operatives in an organization. The operatives are implementing policies of top management.
- Out of available many alternatives, a suitable profitable course of action is selected.
- A budget discloses the policy of the organization in numerical terms and attainable in a specific time.
2. Co-ordination: Co-ordination means an orderly arrangement of business activities in the pursuit of a common purpose. The business activities are properly co-ordinates and achieved with the help of budgetary control technique. The reason is that the line manager alone does not prepare a budget. A budget has close relationship with other budgets.
For example: The sales manager prepares sales budget on the basis of production budget. Likewise, the production budget is prepared on the basis of raw materials budget, direct labor hours budget and machine hours budget. Hence, the departmental budgets are interrelated and interdependent. A master budget is prepared through integration of various budgets. In other words, a business organization is running through the coordination of various functional area executives.
Effective co-ordination is also based on adequate communication network. Every employee of the organization should be informed in advance what is planned, how it is planned and when and by whom it is to be accomplished. In this way, co-ordination is being achieved through budgetary control technique.
3. Control: Nothing can be achieved without exercising control. Mere framing and communicating the objectives are not bringing anything to the organization. Hence there is a need of control mechanism such as budgetary control that is used to achieve the objectives of organization.
Budgetary control places the responsibility of achieving targets on the executives who participated in the budgetary planning function. With regard to the budgetary control, the actual performance of each functional area is measured and compared with per-determined target i.e budget. Based on the comparison, if there is any difference, the reasons for such differences were investigated, analyzed and take corrective action.
The budgetary control makes every executives became cost consciousness. Hence, there is no much difficulty on the part of management to take severe action on executives. In other words, proper control can be exercised over expenditure.