MEANING: In simple words, budgetary means Methodical control of an organization's operations through establishment of standards and targets regarding

income and expenditure, and a continuous monitoring and adjustment of performance against them. Budgetary control is the one of best technique of controlling, management and finance in which every department's budget is made with estimated data. After this, manager compares the estimated data with original data and fix the responsibility of employee if variance will not be favourable. Budget is a financial and /or quantitative statement, prepared and approved prior to a defined Period of time of the policy to be pursued during that period for the purpose of attaining a given objective. It may include income, expenditure and employment of capital. In other words, to make budget and control the business is key tool in budgetary control.

DEFINITION:
Budgetary control is defined by the Institute of Cost and Management Accountants (CIMA) as: "The establishment of budgets relating the responsibilities of executives to the requirements of a policy, and the continuous comparison of actual with budgeted results, either to secure by individual action the objective of that policy, or to provide a basis for its revision". .

Salient features:
Objectives: Determining the objectives to be achieved, over the budget period, and the policy that might be adopted for the achievement of these ends. Activities: Determining the variety of activities that should be undertaken for achievement of the objectives. Plans: Drawing up a plan or a scheme of operation in respect of each class of activity, in physical a well as monetary terms for the full budget period and its parts.

Performance Evaluation: Laying out a system of comparison of actual performance by each bperson section or department with the relevant budget and determination of causes for the discrepancies, if any. Control Action: Ensuring that when the plans are not achieved, corrective action are taken and when corrective actions are not possible, ensuring that the plans are revised and objective achieved

objectives of Budgeting :
1.To encourage selfstudy in all aspects of a Company's operations. 2. To get all members of management to put their heads to the basic question of how the business should be run, to make them of a coordinated team operating in unison towards clearly defined objectives. 3. To promote the planning process and provide a sense of direction to every member of the organization. 4. To force a definition and crystallization of Company policies and aims. 5. To increase the effectiveness with which people and capital are employed. 6. To disclose areas of potential improvement in the Companys operations. 7. To stimulate study of relationship of the Company to its external economic environment for improving the effectiveness of its direction. 8. To direct and coordinate business activities and units to achieve stated targets of performance. 9. To facilitate the control process, by comparing actual results with plan, and provide feedback to the employees about their performance.

The objectives of a Budgetary Control System:

1.Definition of Goals: Portraying with precision, the overall aims of the business and determining targets of performance for each section or department of the business. 2. Defining Responsibilities: Laying down the responsibilities of each individual so that everyone knows what is expected of him and how he will be judged. 3. Basis for Performance Evaluation: Providing basis for the comparison of actual performance with the predetermined targets and investigation of deviation, if any, of actual performance and expenses from the budgeted figures. It helps to take timely corrective measures. 4. Optimum use of Resources: Ensuring the best use of all available resources to maximize profit or production, subject to the limiting factors.

5. Coordination: Coordinating the various activities of the business and centralizing control, but also making a facility for the Management to decentralize responsibility and delegate authority. 6. Planned action: Engendering a spirit of careful forethought, assessment of what is possible and an attempt at it. It leads to dynamism without recklessness. It also helps to draw up long range plans with a fair measure of accuracy. 7. Basis for policy: Providing a basis for revision of current and future policies

Budgetary control methods

a) Budget:
A formal statement of the financial resources set aside for carrying out specific activities in a given period of time. It helps to co-ordinate the activities of the organisation. An example would be an advertising budget or sales force budget.

b) Budgetary control:
A control technique whereby actual results are compared with budgets. Any differences (variances) are made the responsibility of key individuals who can either exercise control action or revise the original budgets.

Budgetary control and responsibility centres;

These enable managers to monitor organisational functions. A responsibility centre can be defined as any functional unit headed by a manager who is responsible for the activities of that unit. There are four types of responsibility centres: a) Revenue centres Organisational units in which outputs are measured in monetary terms but are not directly compared to input costs. b) Expense centres Units where inputs are measured in monetary terms but outputs are not.

c) Profit centres Where performance is measured by the difference between revenues (outputs) and expenditure (inputs). Inter-departmental sales are often made using "transfer prices". d) Investment centres

Where outputs are compared with the assets employed in producing them, i.e. ROI.

Advantages of budgeting and budgetary control

There are a number of advantages to budgeting and budgetary control: The use of budgetary control system enables the management of a business concern to conduct its business activities in the efficient manner.

It is a powerful instrument used by business houses for the control of their expenditure. It infact provides a yardstick for measuring and evaluating the performance of individuals and their departments.

It reveals the deviations to management, from the budgeted figures after making a comparison with actual figures.

Effective utilization of various resources likemen, material, machinery and money is made possible, as the production is planned after taking them into account.

It helps in the review of current trends and framing of future policies.

It creates suitable conditions for the implementation of standard costing system in a business organization.

Compels management to think about the future, which is probably the most important feature of a budgetary planning and control system. Forces management to look ahead, to set out detailed plans for achieving the targets for each department, operation and (ideally) each manager, to anticipate and give the organisation purpose and direction.

Promotes coordination and communication. Clearly defines areas of responsibility. Requires managers of budget centres to be made responsible for the achievement of budget targets for the operations under their personal control. Provides a basis for performance appraisal (variance analysis). A budget is basically a yardstick against which actual performance is measured and assessed. Control is provided by comparisons of actual results against budget plan. Departures from budget can then be investigated and the reasons for the differences can be divided into controllable and non-controllable factors.

Enables remedial action to be taken as variances emerge.

Motivates employees by participating in the setting of budgets.

Improves the allocation of scarce resources.

Economises management time by using the management by exception principle.

Problems in budgeting
Whilst budgets may be an essential part of any marketing activity they do have a number of disadvantages, particularly in perception terms. a)Budgets can be seen as pressure devices imposed by management, thus resulting in: a) bad labour relations b) inaccurate record-keeping. d) Departmental conflict arises due to disputes over resource allocation e)Departmental conflict arises due to departments blaming each other if targets are not attained. f)It is difficult to reconcile personal/individual and corporate goals. g)Waste may arise as managers adopt the view, "we had better spend it or we will lose it". This is often coupled with "empire building" in order to enhance the prestige of a department. Responsibility versus controlling, i.e. some costs are under the influence of more than one person, e.g. power costs. h)Managers may overestimate costs so that they will not be blamed in the future should they overspend.

Characteristics of a budget
A good budget is characterised by the following: Participation: involve as many people as possible in drawing up a budget. Comprehensiveness: embrace the whole organisation. Standards: base it on established standards of performance. Flexibility: allow for changing circumstances. Feedback: constantly monitor performance. Analysis of costs and revenues: this can be done on the basis of product lines, departments or cost centres

Budget preparation

Firstly, determine the principal budget factor. This is also known as the key budget factor or limiting budget factor and is the factor which will limit the activities of an undertaking. This limits output, e.g. sales, material or labour. a) Sales budget: this involves a realistic sales forecast. This is prepared in units of each product and also in sales value. Methods of sales forecasting include: sales force opinions market research statistical methods (correlation analysis and examination of trends) mathematical models. In using these techniques consider: company's pricing policy general economic and political conditions changes in the population competition consumers' income and tastes advertising and other sales promotion techniques after sales service credit terms offered. c) Production budget: expressed in quantitative terms only and is geared to the sales budget. The production manager's duties include: analysis of plant utilisation work-in-progress budgets. If requirements exceed capacity he may: subcontract plan for overtime introduce shift work hire or buy additional machinery The materials purchases budget's both quantitative and financial.

d) Raw materials and purchasing budget: The materials usage budget is in quantities. The materials purchases budget is both quantitative and financial. Factors influencing a) and b) include: production requirements planning stock levels storage space trends of material prices.

d) Labour budget: is both quantitative and financial. This is influenced by: production requirements man-hours available grades of labour required wage rates (union agreements) the need for incentives. e) Cash budget: a cash plan for a defined period of time. It summarises monthly receipts and payments. Hence, it highlights monthly surpluses and deficits of actual cash. Its main uses are: to maintain control over a firm's cash requirements, e.g. stock and debtors to enable a firm to take precautionary measures and arrange in advance for investment and loan facilities whenever cash surpluses or deficits arises to show the feasibility of management's plans in cash terms to illustrate the financial impact of changes in management policy, e.g. change of credit terms offered to customers. Receipts of cash may come from one of the following: cash sales payments by debtors the sale of fixed assets the issue of new shares the receipt of interest and dividends from investments. Payments of cash may be for one or more of the following: purchase of stocks payments of wages or other expenses purchase of capital items payment of interest, dividends or taxation.

Steps in preparing a cash budget

i) Step 1: set out a pro forma cash budget month by month. Below is a suggested layout. Month 1 Month 2 Month 3 $ Cash receipts Receipts from debtors Sales of capital items Loans received Proceeds from share issues $ $

Any other cash receipts Cash payments Payments to creditors Wages and salaries Loan repayments Capital expenditure Taxation Dividends Any other cash expenditure Receipts less payments Opening cash balance b/f Closing cash balance c/f W X X Y Y Z

ii) Step 2: sort out cash receipts from debtors iii) Step 3: other income iv) Step 4: sort out cash payments to suppliers v) Step 5: establish other cash payments in the month

Composition of a master budget OPERATING BUDGET consists of:Budget P/L acc: get: Production budget Materials budget Labour budget Admin. budget Stocks budget FINANCIAL BUDGET consists of Cash budget Balance sheet Funds statement

Other budgets:
These include budgets for: administration research and development selling and distribution expenses capital expenditures working capital (debtors and creditors).

DISADVANTAGES/LIMITATIONS OF THE BUDGETARY CONTROL SYSTEM

1. Estimates: Budgets may or may not be true, as they are based on estimates. The Assumptions about future events may or may not actually happen. 2. Rigidity: Budgets are considered as rigid document. Too much emphasis on budgets may affect daytoday operations and ignores the dynamic state of organizational functioning. 3. False Sense of Security: Mere budgeting cannot lead to profitability. Budgets cannot be executed automatically. It may create a false sense of security that everything has been taken care of in the budgets. 4. Lack of coordination: Staff cooperation is usually not available during Budgetary Control exercise. 5. Time and Cost: The introduction and implementation of the system may be expensive.

Importance of Budgetary Control

1. To Use the Forecasting Techniques It is the importance of budgetary control that with this, we can use the forecasting techniques. Three departments work hard for calculating best estimation of future. Accounting department provides old data. Statistical department provides the tools and techniques of forecasting like probability, time series other sampling methods. Management department uses both department services to estimate the expenditures and revenue of business under the normal conditions of business. So, no department say anything wrong in making of budget. So, it is necessary for business to use budgetary control techniques.

2. Fix the Responsibility of Departments Department's scientific name is cost center. Manager makes budget and show the target of company and employees are given the powers to perform these targets. After checking the variance in budget through budgetary control process, manager can fix the responsibility of each department and its employees in a particular cost center.

3. Effective Utilization of Company's resources Company can only effective use its resources, if someone stops misuse of money and fund of company. If budgetary control is used in company, at that time, no action will be taken before making budget. Responsible personal of company will

be accountable for his action. Suppose, company has fixed the target of company's annual Sale is $ 40,00,000 after participating sales manager in the setting of this sale budget. Now, after one year, if sale is just $ 1,00,000. This sale manager must say what is the reason for not selling the product up to standard level of sale.

4. Excel yourself After using budgetary control techniques in your business, you will definitely learn the skills of excel yourself because we all know that a budget is based on estimates, it may or may not be true. But continually practise of making good budget and apply in organisation, manager can learn skills and experience for increasing the efficiency in every work of company. Meaning of this, manager will get positive approach through budgetary control.

Different steps in preparation of budgets

1. Definition of objectives A budget being a plan for the achievement of certain operationalobjectives, it is desirable that the same are defined precisely. The objectives should be writtenout the areas of control demarcated and items of revenue and expenditure to be covered by thebudget stated. This will give a clear understanding of the plan and its scope to all those whomust cooperate to make it a success. 2. Location of the key (or budget) factor There is usually one factor (sometimes there may be more than one) which sets a limit to the total activity. For instance, in India today sometimes Nonavailability of power does not allow production to increase inspite of heavy demand. Similarly, lack of demand may limit production. Such a factor is known as key factor. For proper budgeting, it must be located and estimated properly. 3. Appointment of controller Formulation of a budget usually required whole time services of a senior executive he must be assisted in this work by a Budget Committee, consisting of all the heads of department along with the Managing

Director as the Chairman. The Controller is responsible for coordinating and development of budget programmes and preparing the manual of instruction, known as Budget manual. The Budget manual is a schedule, document or booklet which shows, in written forms the budgeting organization and procedures. The manual should be well written and indexed so that a copy thereof may be given to each departmental head for guidance. 4. Budget Period The period covered by a budget is known as budget period. There is no general rule governing the selection of the budget period. In practice the budget committee determines the length of the budget period suitable for the business. Normally, a calendar year or a period coterminous with the financial year is adopted. The budget period is then subdivided into shorter periodsit may be months or quarters or such periods as coincide with period of trading activity.

5. Standard of activity or output For preparing budgets for the future, past statistics cannot be completely relied upon, for the past usually represents as combination of good and bad factors. Therefore, though results of the past should be studied but these should only be applied when there is a likelihood of similar conditions repeating in the future. Also, while setting the targets for the future, it must be remembered that in a progressive business, the achievement of a year must exceed those of earlier years. Therefore what was good in the past is only fair for the current year.

Functional budget

A functional budget is one which is related to function of the business as for example, production budget relating to the manufacturing function. Functional budgets are prepared for each function and they are subsidiary to the master budget of the business. The various types of functional budgets to be prepared will vary according to the size and nature of the business.

The various commonly used functional budgets are: 1. Sales budget

2. Production budget 3. Plant utilization budget 4. Direct material usage budget 5. Direct material purchase budget 6. Directlabour (personnel) budget 7. Factory overhead budget 8. Production cost budget 9. Endinginventory budget 10. Cost of good sold budget 11. Selling and distribution cost budget 12. Administration expenses budget 13. Research and development cost budget 14. Capital expenditure budget 15. Cash budget 16. Budget Summaries / master budget budgeted income statement and Budgeted balance sheet.

Flexible budget:
A flexible budget is defined as a budget which, by recognizing the difference between fixed, semivariable and variable costs is designed to change in relation to the level of activity attained. A fixed budget, on the other hand is a budget which is designed to remain unchanged irrespective of the level of activity actually attained. In a fixed budgetary control, budgets are prepared for one level of activity whereas in a flexible budgetary control system, a series of budgets are prepared one for each of a number of alternative production levels or volumes. Flexible budgets represent the amount of expenses that is reasonably necessary to achieve each level of output specified. In other words, the allowances given under flexible budgetary control system serve as standards of what costs should be at each level of output. Need: The need for the preparation of the flexible budgets arises in the following circumstances:

1. Seasonal fluctuations in sales and/or production, for example in soft drinks industry 2. A company which keeps on introducing new products or makes changes in the design of its products frequently 3. industries engaged in maketoorderbusiness like ship building 4. an industry which is influenced by changes in fashion and 5.general changes in sales.

OBJECTIVES OF THE STUDY To offer comments on the annual budgeted estimations on the accounts of am o t h e r d a i r y f o r t h e u s e r s o f t h e f i n a n c i a l s t a t e m e n t s t o access the ability of the m o t h e r d a i r y t o g e n e r a t e c a s h a n d c a s h e q u i v a l e n t s t o s e r v e t h e n e e d s o f t h e organization.To derive the working experience of producing budgetary statements.To offer limited directions cash management group to steer the organization to a cashsurplus company. Analyzing the budgetary estimations of the organization. SCOPE OF THE STUDY Mother dairy having the continuous growth every year several divisions, thes t u d y o f b u d g e t a r y c o n t r o l i n t h i s o r g a n i z a t i o n g i v e s a f a i r i d e a o n t h e c a s h management considering the major transaction of the firm.T h e b u d g e t a r y e s t i m a t i o n s a r e t a k e n f o r t h e p r o j e c t s t u d y f o r m t h e a n n u a l reports for the information, and are restricted to the last five years. Several aspects of the firm have been considered.The discussion is made in ensuring chapter for the budgetary estimations thathave been prepared at the end of the financial year, and the date is compared with the past five years records.1

METHODOLOGY OF THE STUDY: A. Sources of the data There are mainly two important sources through which the whole data is collected.

Primary Data The primary data of the topic is collected by personal interaction with theofficials of the finance and accounting d e p a r t m e n t a n d a l s o f r o m a n n u a l s o f t h e company. The financial data relating to organization has been collected for the 5years.

Secondary Data The data collected from the websites, books and all other relevant information or literary are taken as secondary source of data. The data thus collected isarranged in a format. B. Period of the data The is the project report (live project) conducted in the month of April,2007 for 45d a y s . T h e p a r t i a l f u l f i l l m e n t o f M a s t e r o f Business Administration. PRESENTATION OF THE STUDY 1)The first chapter is the present scenario of the topic together w i t h o b j e c t i v e s and methodology are presented. 2)The second chapter is about the profile of the MOTHER D A I R Y i s g i v e n i n which the study is done .3)The third chapter is about industrial profile. 4)The fourth chapter is conceptual frame work relating to budgets and a budgetis reported through tables. 5)The fifth chapter consists of the study of budgetary c o n t r o l o f M O T H E R DAIRY. 6)The sixth chapter consists of the suggestion & bibliography. LIMITATIONS TOF THE STUDY

The 6 weeks period is one of the constraints to make project much more qualitativelyFindings of the study are purely based on information provided by the company other non financial factors were not considered for analysis