Budgetary control techniques

Budgetary control is the way of controlling organisation in which different budgets are made and with these budgets, organisation finds its weak points and then it improves these weak points.

Budgetary control involves analyzing the results of the budget once you implement it.

In budgetary control, we use following techniques:

1. Variance Analysis

First of all, budgets of different departments are made with estimated figures. After this, it is compared with actual accounting figures. In this technique, we find variances. These variances may be favourable and unfavourable. For example, we have recorded actual quantity and cost of our raw material, after this, it is compared with budgeted value of raw material quantity and cost. Result of this will be material cost variance. Like this, we will find the variance of labour cost and overhead cost. This technique of budgetary control is helpful for reducing the cost of business.

2. Responsibility Accounting

Responsibility accounting is also a good budgetary control technique. In this technique, we create cost centre, profit centre and investment centre. All these centres are just like department of any organisation. Now, we classify our all employees work on the basis of their centres. Every employee’s responsibility is fixed on the basis of his target or performance. After this, we record their performance manually. Then, we fix their accountability. For example, we have fixed the target of sales department is of Rs. 5 Lakh per month. For this, we have appointed expert salesman. But sales department’s total per month sales is Rs. 3 Lakh which is Rs. 2 Lakh less than our sales department target. Through this budgetary control, we can take the decision of promotion and demotion of our employees or find other reasons if we do not obtain our targets.

3. Adjustment of Funds

In this technique of budgetary control, top management take the decision to adjust fund from one project to other project. For example, when Govt. of India makes budget for allocation of its total fund in different projects, at that time, it has to take decision for adjustment of funds. For example, railway department needs money for specific new project. If Govt. of India sees that project of IT has excess money, then it can be utilized for railway budget. In adjustment of funds, we also use fund flow analysis. We can also decrease misuse of funds by forecasting proper amount.

4. Zero Base Budgeting (ZBB)

These days zero base budgeting is popular technique of budgetary control. In this technique, every next year budget is made on nil base. It can only be possible, if your estimated income will be equal to the estimated expenses. At that time, difference between estimated income and estimated expenses will be zero. If there is any excess, it will be adjusted. For example, if your estimated revenue is more than estimated expenses, you need to increase the amount or allocate in new estimated expenses. With this, nothing will go to next year. With zero base budgeting technique, you can control on every money which you have to spend. Its base will be the current year income only.