THE ROLE OF BUDGETING AND BUDGETARY CONTROL IN A BUSINESS ORGANIZATION
ABSTRACT
This research work conducted with special reference to the budgetary system of Emenite Nigeria Limited with the view to ascertain the major role budgets play in the achievement of profitability for an organization. Budget as a profit planning device sets standards of performance of manager, while budgetary control is a tool implored by management to keep track of actual performance to ensure budgeted standards are achieved. In the course of this research work 40 managers were taken as sample population. Data is obtained through personal interview and the administration of questionnaires secondary data source is also implored. Data collected in subject to chi-square test in order to prove or disprove hypothesis therein. The analysis of the finding indicates that Emenite Nigeria Limited has a formal system of budgeting and does attach incentives for the attainment of budgetary goals.
CHAPTER ONE
INTRODUCTION
1.1 BACK GROUND OF THE STUDY
A budget is a financial and a quantitative statement prepared prior to a defined period of time of the policy to be pursued for the purpose of attaining a given objective.
Also according to A.U. Nweze (2004) in his profit planning.
Budget is a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planned income to be generated and or expenditure to be incurred during that period and the capital to be employed to attain a given objective.
Furthermore a budget is an attempt made at the beginning of each financial year to plan the profit and loss account for the year and to aim for a definite balance sheet. This profit planning must be a well thought- out operational plan with its financial implication expressed as both long and short range profit plans.
In any organization where budget is used as a means of profit planning many alternative plans have to be considered and the most profitable one will be adopted, because where the plan chosen in great expectations, then the best use has been made of the available resources.
On the other hand budgetary control is the establishment of policies and the periodic review or comparison of the actual result with the budgeted performances either to secure approval for individual action or to serve as a remedial course of action. Budgetary control whereby actual state of affairs can be compared with that planned for by the management, so that appropriate action may be taken to correct adverse situation that may occur before it is too late. It is also used to fix responsibility.
A budget systems serve the needs of management in respect of the Judgments and decisions it is fruited to make and to provide a basis for the management functions of planning and control. Developing a budget is a critical step in planning any economic activity. This includes business, governmental agencies and individuals.
Therefore businesses of all types and governmental units at every level must make financial plans to carry out routine operations, to plan for major expenditures and to help in making financial decisions.
On this back ground, every organization no matter nature has a plan for the future, simply because the success of any organization depends on the level of plan that is put into the organization.
1.2 STATEMENT OF THE PROBLEM
The main problem with budgeting is that it reflects data from the past and present, and will only enable predictions and forecasts to be made out the future. At the same time, numerous pressures in the job may impose constraints upon managers, which affect the quality of information they collect. The problem can be numerous; clearly, nothing can be forecasted with absolute certainty. No matter what financial and marking researches take place every organization has to take risks.
Though accounting information may reduce the unpredictability of event in the future. It will never eliminate it.
All these can interrupt the system of budgetary control:
An appropriations budget limits expenditures to the appropriations provided in the budget. Naturally, the amounts appropriated tend to be in line with the expected revenues for the period. Such a system provides little in the way of flexibility. It also has a serious defect because the control aspect is limited to an end-of-the period comparison of actual revenues and expenditure with those budgeted.
The fixed or fore type of budget is criticized as being a restrictive budget, which establishes expose limits that cannot be exceeded. The future cannot be certain, therefore, it is extremely difficult to forecast what will happen in future.
Hence, when circumstances that will alter the forecast materially occur, an inflexible plan propels a company into trouble.
It is impossible to state the duration of a budget programme because the longer a budget period, the more difficult it because to anticipate how general economic conditions will affect the business of the company.
1.3 OBJECTIVES OF THE STUDY
The objective of budgeting and budgetary control in a business organization includes;
1.4 SIGNIFICANCE OF THE STUDY
This study is Budgeting and budgetary control is of great importance to a business organization because;
1.5 FORMULATION OF HYPOTHESIS
STATEMENT OF HYPOTHESIS
H0: Budgets are not an effective guide to business growth.
H1: Budgets are an effective guide to business Growth.
H0: Budgets are not a means to control and synchronize organization’s personnel and functions.
H1 Budgets are a means to control and synchronize organization’s personnel and functions.
H0: Budgets are not more effective when reward penalty is
based on goal attainment.
H1 Budgets are more effective when reward penalty is not based on goal attainment.
1.6 SCOPE OF THE STUDY.
The study of “budgeting and budgetary control” in business organizations could have been extended to cover the whole of the accounting and financial areas of the business organization in all the states of Nigeria and abroad. But because of some limiting factors, the scope of the study will be limited to only the facts on the budgeting and budgetary control in business organizations in general and with special reference to Emenite Nigeria Limited budgeting system.
1.7 LIMITATIONS OF THE STUDY
Though budgeting and budgetary control has many impressive and far reaching advantages, but it also has certain limitations and pitfalls which the organization must consider.
According to Terry Lucey in his costing sixth edition, (pg 386) the principal factor limiting budget is customers demand, that is the company is unable to sell all the output it can produce.
Other factors limiting the study are; the system requires the co-operation and participation of all members of management and not only that, the basis for success is executive managements absolute adherence and enthusiasm for the budget. This is really very important; but most often budgetary control has failed because some of the members of management have paid lip services to its execution.
1.8 DEFINITION OF TERMS
BUDGETARY CONTROL: According to the Chartered Institute of Management Accountants (CIMA). Budgetary control is the establishment of budgets relating to responsibilities of executive to the requirements of a policy and the continuous comparison of actual with budgeted results, either to secure by individual action the objectives of that policy or to provide a basis for its revision.
RESPONSIBILIT CENTRE- According to Colin Drury in his management and cost accounting sixth edition (pg653). Responsibility centre is a unit of a firm where an individual manager is held responsible for the units performance.
BUDGEYING- According to Ugwu Chukwuma Collins in his understanding cost accounting (2009) page 234. Budgeting is the act of preparing a budget.
BUDGET- According to Terry Lucey in his costing sixth edition. A budget is a quantitative statement, for a defined period of time, which may include planned revenue, expenses, assets, liabilities, and cash flows, which provides a focus for the organization, aids the co-ordination of activities and facilitates control.
