Budgetary Control Case

Budgetary Control

ACC 544

March 30, 2015

Budgetary Control

Introduction

Companies have to use a myriad of analysis and methods to achieve, grow, and maintain profitability and success.  Management is responsible for making sure that it happens. A major function of management is to control the company’s operations, which is done by ensuring objectives set by the company are being met. Amongst the tools used is budgeting.  Budgeting is critical when evaluating the success of a company. The most common budgeting techniques used are flexible budgeting, and static budgeting. The two budgeting techniques are a part of budgetary control.

Budgetary Control

Budgetary control is the use of budgeting in controlling operations. Budgetary control is an essential tool used for policy planning, as well as control. The main objectives of budgetary control are to regulate work activities and efforts to ensure that actual results align with planned results; to coordinate the work efforts of different departments of the business so that policies are implemented successfully; to provide performance targets, serve as guidance for activities and work efforts, and to help determine business policies that will achieve the company’s set objectives during a planned timeframe; to operate each department economically and efficiently; and to correct any deviations from the set standards and provide a foundation for needed revisions of policies.  

Budgetary control is comprised of budget reports that provide a comparison of actual results and planned objectives. The reports provide critical feedback on operations and are prepared as often as needed. Management uses these reports to analyze any differences between the planned results and the actual results and the cause for the differences. This allows them to take corrective action or to decide if future plans need to be modified.

Static Budgets

According to Kieso et al, “A static budget is a projection of budget data at one level of activity. These budgets do not consider data for different levels of activity. ” (Kieso et al, 2008). Static budgets will remain the same even if there are changes in volume. The data in a static budget will not be adjusted or modified which makes it effective in deciding if a manager is doing well with controlling cost when the actual level of activity resembles closely the master budget activity, or the behavior of the costs in response to changes remains fixed. The static budget works well for fixed costs, but is not as valuable for providing performance measurements with controlling variable costs.