Question

What is meant by budgetary control?

Hint:

Think of budgetary control as a GPS for business: the budget is your "route," and the control process constantly checks if you have "rerouted" so you can get back to your financial destination.

Answer 1

Step 1: Core Definition.
Budgetary control is a system of management control in which all operations are planned in advance in the form of budgets. Actual results are then compared with these budgeted standards to identify any deviations, allowing management to take necessary corrective actions.

Step 2: Key Objectives.
The primary purpose of budgetary control is to ensure that the organization's objectives are met through systematic financial planning. It involves:

Planning: Establishing clear goals for various departments (e.g., Sales Budget, Production Budget).
Coordination: Aligning different departments toward a unified financial target.
Control: Using the budget as a "yardstick" to measure performance and prevent wasteful expenditure.

Step 3: The Process of Control.
The process starts with the preparation of various budgets. During the budget period, actual performance is recorded. At the end of the period, managers perform a "Variance Analysis." If the actual cost is higher than the budgeted cost (adverse variance), management investigates the cause and adjusts operations to bring them back on track.