What are the objectives of budgetary control ? Give its advantages and disadvantages. (2022)

Meaning of Budgetary Control

Budgetary control is a management tool that involves the preparation of budgets for various activities or departments of an organization and the continuous comparison of actual performance with the budgeted figures. It helps in monitoring and controlling income and expenditure to ensure that organizational objectives are achieved efficiently. objective of budgetary control

Key Points:

• Involves setting budgets, comparing actual results, and taking corrective actions.
• Aims to control costs, improve efficiency, and guide decision-making.
• It is an essential part of financial planning and control in an organization. objective of budgetary control

Objectives of Budgetary Control

1. Planning:
   To plan the future activities of the organization in terms of income, expenditure, and resource allocation.
2. Control:
   To monitor actual performance and ensure it stays within the set limits by comparing it with the budget.
3. Coordination:
   To ensure all departments work together in harmony toward the overall goals of the organization.
4. Cost Management:
   To control and reduce unnecessary costs by setting spending limits.
5. Performance Evaluation:
   To assess the efficiency and effectiveness of departments and employees. objective of budgetary control
6. Decision-Making Support:
   To provide accurate financial data that helps managers make informed decisions.
7. Resource Optimization:
   To make the best use of available resources by planning and controlling their usage. objective of budgetary control

Advantages of Budgetary Control

1. Helps in Planning:
   Encourages forward thinking and sets clear financial and operational goals.
2. Improves Coordination:
   Ensures that different departments and activities are aligned and work together efficiently.
3. Effective Control:
   Enables management to monitor performance and take corrective actions when necessary.
4. Cost Control:
   Helps in identifying and eliminating unnecessary expenses, leading to better cost management.
5. Improves Efficiency:
   Encourages better resource utilization and reduces wastage. objective of budgetary control
6. Performance Evaluation:
   Facilitates the measurement and comparison of actual results with the budgeted ones.
7. Supports Decision-Making:
   Provides reliable financial data that helps managers make informed decisions.
8. Motivates Employees:
   Sets targets that can motivate employees to achieve better performance. objective of budgetary control

Disadvantages of Budgetary Control

1. Time-Consuming and Costly:
   Preparing, implementing, and monitoring budgets requires significant time and resources.
2. Based on Estimates:
   Budgets rely on forecasts which may not always be accurate, leading to unrealistic targets. objective of budgetary control
3. Rigidity:
   Strict adherence to budgets can reduce flexibility and limit the ability to respond to unexpected situations.
4. May Cause Conflicts:
   Departments may compete for resources or blame each other for unfavorable variances. objective of budgetary control
5. Discourages Innovation:
   Employees may focus only on meeting budget targets and avoid creative or risk-taking activities.
6. Manipulation of Results:
   Managers may alter figures or delay expenses to appear within budget, leading to misleading information.
7. Employee Resistance:
   Staff may feel pressured or micromanaged, leading to reduced morale if budgets are too strict or unrealistic.

Conclusion of Budgetary Control and Its Advantages & Disadvantages

Budgetary control is a vital financial tool used by organizations to plan, monitor, and control income and expenditure. It helps in setting clear goals, improving coordination among departments, and ensuring that resources are used efficiently. The advantages such as better planning, cost control, and performance evaluation make it an essential part of effective management.

However, budgetary control also has limitations. It can be time-consuming, rigid, and sometimes based on inaccurate estimates. If not implemented wisely, it may discourage innovation and cause conflicts among departments.

In conclusion, when applied thoughtfully, budgetary control offers numerous benefits that outweigh its drawbacks, helping organizations achieve financial discipline and strategic objectives. You can check the syllabus of cost Accounting on the official website of Gndu.

Essential Questions of Cost Accounting

1. Treatment of Normal and Abnormal wastage in cost Accounting.
2. Importance of Functional budget.

objective of budgetary control