What role does budgetary control play in cost control? What are the requirements for its successful implementation?
Budgetary Control is establishment of budgets and the continuous comparison of actual results with the planned results. It computes the variances and after that management takes necessary actions to maintain favourable variations, through revision of the budgets.
Following are the requirements for the successful implementation of Budgetary Control:
- First a Budget Centre which is that section of the organisation for which the budget will be prepared should be clearly defined.
- Budget Period or the time period for which the budget will be prepared and operated should be decided carefully. It should neither be too long nor too short.
- An efficient and proper system of accounting should be established so that the information required for the proper implementation for the budgetary control can be available on time.
- A proper organisational chart should be prepared properly, clearly depicting the responsibilities and duties of each level of executive.
- A budget manual, an important document in relation to the budgetary control. It should be well written, indexed and divided into sections. It should include principles and objectives of budgetary control, duties and responsibilities of each executive in the organisation, accounts codes, budget diagrams, etc.
- A budget key factor should be assessed before preparing other functional budgets to ensure that other functional budgets are capable of fulfilment.