Budgetary control is the process by which budgets are prepared for the future period and are compared with the actual performance for finding out variances, if any. The comparison of budgeted figures with actual figures will help the management to find out variances and take corrective actions without any delay.
Objectives of Budgetary Control
The main objectives of budgetary control are given below:
1. Defining the objectives of the enterprise.
2. Providing plans for achieving the objectives so defined.
3. Coordinating the activities of various departments.
4. Operating various departments and cost centres economically and efficiently.
:5. Increasing the profitability by eliminating waste.
6. Centralizing the control system.
7. Correcting variances from sit standards.
8. Fixing the responsibility of various individuals in the enterprise.
Budgetary control has become an important tool of an organization to control costs and to maximize profits. Some of the advantages of budgetary control are:
1. It defines the goals, plans and policies of the enterprise. If there is no definite aim then the efforts will be wasted in achieving some other aims.
2. Budgetary control fixes targets. Each and every department is forced to work efficiently to reach the target. Thus, it is an effective method of controlling the activities of various departments of a business unit.
3. It secures better co-ordination among various departments.
4. In case the performance is below expectation, budgetary control helps the management in finding up the responsibility.
5. It helps in reducing the cost of production by eliminating the wasteful expenditure.
6. By promoting cost consciousness among the employees, budgetary control brings in efficiency and economy.
7. Budgetary control facilitates centralized control with decentralized activity.
8. As everything is planned and provided in advance, it helps in smooth running of business enterprise.
9. It tells the management as to where action is required for solving problems without delay.
Disadvantages or Limitations of Budgetary Control
The following are the limitations of budgetary control:
1. It is really difficult to prepare the budgets accurately under inflationary conditions.
2. Budget involves a heavy expenditure which small business concerns cannot afford.
3. Budgets are prepared for the future period which is always uncertain. In future, conditions may change which will upset the budgets. Thus, future uncertainties minimize the utility of budgetary control system.
4. Budgetary control is only a management tool. It cannot replace management in decision-making because it is not a substitute for management.
5. The success of budgetary control depends upon the support of the top management. If there is lack of support from top management, then this will fail.