IMPORTANT TOPIC FOR SEBI GR A 2020 EXAM STUDY MATERIAL COSTING

IMPORTANT TOPIC FOR SEBI GR A 2020 EXAM STUDY MATERIAL 

COSTING

Basics of Cost Control and Analysis

Budget and Budgetary Control

Budget

Budget represents the objectives of any organization that is based on the implication of forecast and related to planned activities.

Budget is neither an estimate nor a forecast because an estimation is a predetermination of future events, may be based on simple guess or any scientific principles.

Similarly, a forecast may be an anticipation of events during a specified period of time. A forecast may be for a specific activity of the company. We normally forecast likely events such as sales, production, or any other activity of the organization.

On the other hand, budget relates to planned policy and program of the organization under planed conditions. It represents the action according to a situation which may or may not take place.

Budgeting

Budgeting represents the formation of the budget with the help and coordination of all or the various departments of the firm.

Budgetary Control

Budgetary control is a tool for the management to allocate responsibility and authority in planning for future and to develop a basis of measurement to evaluate the efficiency of operations.

A budget is a plan of the policy to be pursued during a defined time period. All the actions are based on planning of budget because budget is prepared after studying all the related activities of the company. Budget gives a communication ground to the top management with the staff of the firm who are implementing the policies of the top management.

Budgetary control helps in coordinating the economic trends, financial position, policies, plans, and actions of an organization.

Budgetary control also helps the management to ensure and control the plan and activities of the organization. Budgetary control makes it possible by continuous comparison of actual performance with that of the budgets.

Budgets are the individual objectives of a department whereas budgeting may be said to be the act of building budgets. Budgetary Control embraces all this and in addition, includes the science of planning the budgets themselves and utilization of such budget to effect an overall management tool f or the business planning and control.

...Rowland and William

Types of Budgets

Budgets can be categorized in various ways. Let us go through the types of budgets in detail.

Functional Budgets

It relates to any function of the firm such as sales, production, cash, etc. Following budgets are prepared in functional budgets:

Sales Budget

Production Budget

Material Budget

Manufacturing Budget

Administrative Cost Budget

Plant Utilization Budget

Capital Expenditure Budget

Research and Development      Cost Budget

Cash Budget

Master Budget or Summarized Budget or Finalized Profit plan

This budget is very useful for the top management of the company because it covers all the information in a summarized manner.

Fixed Budget

It is a rigid budget and is drawn on the assumption that there will be no change in the budget level.

Flexible Budget

It is also called a sliding scale budget. It is useful in:

the new organizations where      it is difficult to foresee,

the firms where activity      level changes due to seasonal nature or change in demand,

the industries based on      change of fashion,

the units which keep on      introducing new products, and

the firms which are engaged      in ship-building business.

Zero Base Budgeting

Zero base budgeting is not based on the incremental approach; previous year figures are not adopted as base.     

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