Question

Explain the technique of budgetary control.

Hint:

Regular monitoring and analysis of budgets help businesses control costs and stay financially healthy.

Answer 1

Budgetary control is a management technique used to compare the actual financial performance of a business against its budgeted performance. This process allows for the identification of discrepancies and the implementation of corrective measures. Steps in budgetary control: 1. {Setting up budgets:} The first step is to prepare detailed budgets for different departments, including sales, production, administration, and marketing. These budgets serve as financial targets. 2. {Implementing control procedures:} Once the budget is set, it must be communicated to all departments, and processes must be put in place to track actual performance against budgeted figures. 3. {Monitoring performance:} Managers regularly compare actual performance with the budgeted figures to identify any variances. 4. {Analyzing variances:} Variance analysis is the process of identifying the differences between the actual and budgeted performance. Management identifies whether the variance is favorable or unfavorable and determines the cause. 5. {Taking corrective actions:} If unfavorable variances are identified, corrective actions are taken to adjust operations and align performance with the budget. Conclusion: Budgetary control is an ongoing process that helps businesses manage resources efficiently, control costs, and optimize profits.
Final Answer: \[ \boxed{\text{The technique of budgetary control involves setting budgets, monitoring performance, analyzing variances, and taking corrective actions.}} \]