BUDGETING AS A TOOL FOR PLANNING AND CONTROL IN A MANUFACTURING INDUSTRY (A CASE STUDY OF NIGERIAN BREWERIES PLC ENUGU)
According to the institute of cost and management accountant, budget is defined as “a plan quantified in monetary terms, prepared and approved prior to a defined period of times, 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’’
Horngren and Forster see a budget, as a a plan express in a financial and other quantitative terms budgeting and profit planning are synonymous.
Poque G.A father started that a budget “is a plan or target in the form of quantitative statement for a specified time-span’’. He maintained that a budget for the future time-span attempts to “look over the hill’’ into the future period of time and how it intends to get there. Hence, the budget attempt to look at tomorrow business world in a short time frame and management is force to think about tomorrow, plan for tomorrow problem and opportunities. Fregmmen J.M describe budget as “a comprehensive and co-ordinary plan, expressed in financial terms, for the operation and resource of an enterprise, for some specified period in future’’ a budget involve every level of activities, integrating renew plans, expenditure plans, asset requirement and financial needs.
According to T. Lucey, a budget (budgeting) has a number of benefits namely:
- It provides item guidelines for managers and supervisor and is the major way in which organizational objectives are translated into actions
- The budgetary process is an important method of communication and co-ordination bathetically and horizontally.
- The regular systematic facilitates the control of current activities monitoring and reporting of activities. From the above comment, it could be seen that a budget is a quantitative statement of plan for a future period. The process of preparing budgets is know as budgeting, which is therefore the planning and controlling of the cost of an organization.
Also Read: Problems of Budgetary Control as Management Tool for Planning and Control
2.2 FEATURES AND FUNCTION OF BUDGET
A budget has a number of basic elements:
- It is prepared prior to a defined period of times for performance control within the period.
- It is express in financial terms or quantitative terms or both.
- It is a comprehensive and co-ordinate plan of action
- It is a future plan for defined period.
- It is a aimed at attaining organizational objectives.
- It integrates the resource and cost of an organization.
- It state performance expectation over a defined period of time.
Budget function / benefit include the following
- Performance evaluation.
- Co-ordinations of activities.
- Plans implementation.
- Motivation and goal congruence.
- Authority and responsibly for action.
- PERFORMANCE AVALUATION:
This involves assessing a manager’s performance evaluation on his ability to meet budget. This performance evaluation as observes in managers budget record is used in considering a manager for promotion or for a salary increase or for some other form of recognition.
- COORDINATION OF ACTIVITIES:
The budget function of coordination entail that the activities of all department or sus-units and function of an organization are to be co-ordinate tailored as to attained organizational objectives for instance, production and marketing activities must be co-ordinate since it will become ensured to produce goods with little or no sales potential.
- PLANS IMPLEMENTATION
This serves as a guide for implementing plans that are set to achieves the organizational objectives as the aspect of planning in budgeting first of all enable management to determine those policies needed to achieved the desired goals or objectives.
- COMMUNICATION:
The full budgetary process involves lesion and discussion between all levels of management. it is an important formal avenue of communicating between top and lower levels of management regarding the organizations long and short –term objectives and the practical problems of implementing those objectives.
- MOTIVATION AND GOAL CONGRUENCE:
It the goal congruence i.e. the objective of an organization and that of the individual participating in its achievement agree, there will be a motivation impact on the participant to achieve the planned goal congruence. This aspect of the benefit of budget is known as the behavioral aspect of budgeting.
- AUTHORITY AND RESPONSIBILITY ACTION:
Budgeting (with standard costing) is known as responsibility accounting involves line managers in a aspect of budgeting process. This is likely to include staff development and education programme in the meaning and uses of budgets.
7.CONTROl:
This is the measure designed to ensure that plans objectives are achieved. It concerned the guidance the internal operation of the business to produce the most satisfactory profit at the least cost. The process involve three aspect:
- To communicate information about prepared plans.
- To motivate people to accomplish the plans.
- To report performance.
The involve the process of company actual results, planned and budgeted result and reporting the variation which is the principal of budgetary control.,
2.3 PREPARATION OF BUDGET
Preparation of budget requires the joint effort of all executive involve in the setting of goals and devising the policies and activity the procedure necessary to implement the goals. The procedure for construction of a budget varies between organizations each responsible individual, from the lowest levels, may construct his own budget and submit it thought the next highest person, for incorporation in a total or master budget. Alternatively, all detailed individual budget are the master budget may be constructed by the accountant or another executive, and passed downward for comment at all levels.
- Formation of budget committee of which the chairman is the financial controller.
- Preparation of subsidiary budget: subsidiary budget deals with individual budget prepared by various departments. This help to internalize the department objective.
- Collection of the budgets.
- Preparation of master budget: this is the overall budget that constitutes the organizational objective, which assigns responsibilities to each department. It represents a consolidation of all the supporting budgets.
Some subsidiary budget that make up the master budget are:
- PRODUCTION BUDGET:
This budget, according to B.C Osisioma is a statement of output expressed in tones, unit or standard hours. He state that the budget determines WHAT is to be produce, WHEN it is to be produced, and how many are to be produced.
Estimated sales x
Add desired stock at end of period x
Total unit of product required x x
Less stock of product at start x
Estimated production x x
- PURCHASING BUDGET:
The purchase of direct materials is dependent on the level of beginning inventory and the desired ending inventory. The units of materials to be purchased is determined thus:
Budgeted usage x
Add desired ending stock x xx
Less opening stock x
Purchases x x
iii. DIRECT LABOUR BUDGET:
This budget is an estimate labour the direct labour cost because indirect cost are included in the Manu acting overhead cost budget.
The direct labour hour to be spent in produce is a function of the produced and the labour hours required for producing one unit.
- CASH BUDGET
The cash budget represent the cash receipts each month of the budget period. The objectives of the cash budget are:
- To provide management with estimates of the component need of capital.
- To make fund available for the business activities
- To ensure that excess fund are re-invested.
The formula for finding cash budget is as following:
Assuming if is a three-month cash budget.
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