Budgeting And Budgeting Control In Business Organization

Budgeting And Budgeting Control In Business Organization

Abstract

In order to determine the crucial function budgets play in an organization achieving profitability, this research was done with particular attention to the budgetary structure of Emenite Nigeria Limited. Budgetary control is a tool used by management to monitor actual performance in order to ensure that budgeted criteria are met. Budgets are used as a tool for profit planning and to set standards for manager performance. For the purposes of this study, a sample population of 40 managers was chosen. Personal interviews and the distribution of questionnaires are two methods used to collect secondary data. Data was gathered and put through a chi-square test to support or refute the underlying hypothesis. According to the study of the data, Emenite Nigeria Limited has a structured system of budgeting and does provide incentives for meeting financial objectives.

Chapiter 1

Introduction

1.1 The Study’s Background

A budget is a financial and quantitative declaration created in advance of the policies that will be followed in order to achieve a specific goal.

In his profit planning, A.U. Nweze (2004) concurs.

A budget is a plan that is financially quantifiable, created and approved before a specified period of time, and often outlines the projected revenue and/or expenses that will be made during that time as well as the capital that will be used to achieve a specific goal.

A budget is also an effort to plan the profit and loss account for the upcoming fiscal year and to aim for a specific balance sheet at the start of each financial year. This profit planning must be a carefully considered operational plan with both long- and short-term profit plans to communicate its financial implications.

The most profitable alternative plan will be accepted in any business where the budget is employed as a tool for profit planning. This is because, when a plan is chosen with high expectations, the best use of the available resources has been made.

The formulation of policies and the regular assessment or comparison of the actual results with the budgeted performances, on the other hand, serve to either acquire approval for individual action or to serve as a path of corrective action. Budgetary control that allows for a comparison of the current situation with what the management had anticipated in order to take the necessary steps to address any potential negative outcomes before it is too late. It’s also employed to establish accountability.

A budget system supports management’s needs with regard to the judgments and decisions that result from it and serves as a foundation for the management’s planning and control duties. A budget must be created before any economic activity can be planned. This applies to companies, governmental organizations, and people.

Therefore, it is necessary for all sorts of businesses and governmental organizations to create financial plans in order to carry out daily operations, budget for significant expenses, and aid in financial decision-making.

Due to the fact that the success of any organization depends on the level of planning that is done, every organization, regardless of its type, has a plan for the future.

Statement of the issue, in 1.1.1

Budgeting’s fundamental drawback is that it only uses facts from the present and the past to make predictions and forecasts about the future. Managers may have limits due to a variety of work-related demands, which have an impact on the accuracy of the data they gather. There may be several issues; obviously, nothing can be predicted with complete confidence. Every firm must take risks, regardless of the results of any financial or market study.

Even so, accounting data might make future events less unpredictable. It can never be eradicated.

All of these have the potential to disrupt the system of fiscal control:

(1) The budget’s importance as a measure of control may be lost if the actual outcomes are wholly different from the aim. A flexible budget can be changed to align with shifting activities, unlike a fixed budget, which cannot adapt to changes. A flexible budget will notice behavioral changes.

(2) Strictly adhering to a budget can limit an organization’s activities. On the other hand, a manager might go on a spending binge if they discover near the end of the year that their department has underspent.

(3) Budgets may be disregarded if they are imposed on managers without adequate consultation.

A budget with appropriations restricts spending to the funds allotted for that purpose. The sums appropriated often match the anticipated revenues for the given term. Such a system offers very little flexibility. It also has a significant flaw in that the control part is restricted to a comparison of actual revenues and expenses to those budgeted at the end of the term.

It is said that the fixed or fore type of budget is restricted since it sets out boundaries that cannot be surpassed. It is incredibly challenging to predict what will happen in the future because the future cannot be known for sure.

Therefore, a rigid strategy leads to difficulties for a corporation when events arise that will drastically modify the prediction.

It is impossible to specify the length of a budget program since, the longer the budget period, the harder it is to predict how the company’s activity will be affected by general economic conditions.

1.1.2.2 STUDY OBJECTIVES

In a business organization, the goals of budgeting and financial control include;

PLANNING – To create a thorough operating plan for the many divisions and components of the company.

Coordination is the process of bringing together and balancing the actions of the various divisions of an organization into a single, overarching plan.

COMMUNICATION- To establish a clear line of communication in order to keep all parties fully informed of the plans, policies, and restrictions that the organization is required to abide by.

Motivation is the act of influencing managerial behavior and inspiring managers to carry out corporate goals.

CONTROLLING: To support managers in organizing and directing the tasks that fall within their purview.

PERFORMANCE EVALUATION: To assess performance by giving managers a beneficial way to learn how well they are doing in achieving the goals they have previously assisted in setting.

Clarifying authority and responsibilities will make it vital to understand each manager’s obligations with regard to their budget. Additionally, it is necessary to approve the budgetary plans so that management by exception (the practice of granting a subordinate a clearly defined position and the authority to complete the tasks allocated to him) can be used. PAGE 7-9 MATERIAL

1.4 The Study’s Significance

This research is A business organization places high attention on budgeting and budgetary control because;

The creation of a budget facilitates the assignment of duties to each executive and encourages early discussion of fundamental policies. Additionally, it aids in concentrating attention on the potential contribution of each product and market to overall profit, discloses any potential contribution of each product and market to overall profit, and highlights potential opportunities for optimizing profit.

It offers a way to make sure that the amount of money invested in the company is kept to a minimum that is reasonable given the volume of operations. Additionally, it guarantees that sufficient liquid resources are always made available.

It establishes goals and objectives that can be used as standards for assessing performance moving forward.

Regular, methodical monitoring and reporting of activities aid in better control of present operations.

It controls how money is spent, exposing loss, waste, and inefficiency so that remedial action can be made to rectify the bad condition.

It promotes management’s ability to decentralize duties without ceding control, particularly in cases where a business has numerous branch offices or factories.

It enables the coordination of sales, production, and other company activities and requires the management team as a whole to plan cooperatively and take into account all pertinent elements before making a decision.

Where budgetary management is practiced, cost consciousness is always elevated, resulting in a decrease in waste and inefficiency. Additionally, it enables lower levels of management to participate in business management.

It offers a channel for spreading management’s plans throughout the company.

It identifies possible bottlenecks before they materialize.

1.5 The Formulation Of The Hypothesis

EXPRESSION OF HYPOTHESIS

H0: Budgets are ineffective growth indicators for businesses.

H1: Budgets are a useful tool for guiding corporate growth.

H0: Using budgets to manage and coordinate an organization’s workforce is ineffective.

H1 Budgets are a way to manage and coordinate an organization’s staff and operations.

Budgets are ineffective when reward penalties are used, according to H0

based on success in achieving a goal.

Budgets for H1 are more effective when reward penalties are not determined by target completion.

1.6 The Benefit Of The Study.

The study of “budgeting and budgetary control” in business organizations might have been expanded to include all accounting and financial aspects of the business organization in all of Nigeria’s states as well as other countries. However, due to several restrictions, the study’s focus will only be on the data on budgeting and budgetary management in commercial companies in general, with particular attention to the budgeting system of Emenite Nigeria Limited.

Limitations of the study: 1.7

Although budgeting and financial control have many remarkable and far-reaching benefits, there are also some restrictions and traps that the organization has to be aware of.

The primary budgetary constraint, according to Terry Lucey in his Costing sixth edition (p. 386), is consumer demand, or the fact that the corporation can’t sell all of its products.

The system demands the cooperation and involvement of all management personnel. In addition, the success of the system depends on executive management’s unwavering adherence to and excitement for the budget. This is actually quite crucial, but most frequently, budgetary control has failed because some management members have only given it lip service.

Installing budgetary control takes time; in recent years, management has lost patience and interest because it expects too much too quickly. Instead, the system needs to be explained to the responsible officials, who must then be guided where necessary and trained in the basic procedures, methods, and goals of a budgetary control system.

Therefore, the executives should not feel restricted to a specific area. Instead, the budgetary control system should be designed to provide detailed information that will guide them to operate with strength and vision toward the achievement of the organizations.

One will simply accept that none of these concepts—planning, budgeting, or forecasting—can be regarded as a science; yet, some level of judgment is required.

Budget fails to consider responsibility centers when evaluating performance.

It represents a common tool that might not work well without more oversight.

The requirement for exceptional executive competence in planning and presentation.

Budget may facilitate disputes between departments among divisional heads.

The setting of impossible standards or goals for employees.

Insufficient realistic data were used to create the budget.

The amount of inflation has been rising steadily.

The level of technology varies frequently.

Instability in politics.

A budget-disrespecting attitude on the part of the operations management.

1.8 Terminal Definitions

BUDGETARY CONTROL: In line with the recommendations of the Chartered Institute of Management Accountants (CIMA). In order to achieve by individual action the objectives of that policy or to serve as a foundation for its amendment, budgetary control is the formulation of budgets relating to the responsibilities of the executive to the requirements of a policy and the continual comparison of actual with budgeted results.

According to Colin Drury in his sixth edition of Management and Cost Accounting (p. 653). A responsibility center is a division of a company where a single manager is accountable for the operation of the division.

BUDGEYING – As stated on page 234 of Understanding Cost Accounting by Ugwu Chukwuma Collins (2009). Making a budget is the act of budgeting.

BUDGET – As stated by Terry Lucey in his sixth edition of Costing. A budget is a quantitative statement for a specific time period that may include anticipated income, expenses, assets, liabilities, and cash flows. It gives the company direction, promotes activity coordination, and eases control.