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“Budgeting as an Instrument of Internal Control in and relation to Financial

Performance in the Footwear Industry”

Submitted in Partial Fulfilment of

the Requirements for the Degreeof





Dela Rueda, Rominna G.

Osuna, Jason D.

Pasco, Jascha Alliah A.

Santos, Maria KhurmhelyC.

Suazo, Ralph DenverR.

First and foremost, we would like to express our sincere gratitude to our professor, Mr.
Demetrio Asacta, for continuously guiding and supporting us to make this study a success. His
patience, motivation and knowledge helped us a lot in conducting this study. We could not have
imagined having a better advisor and mentor for this study.

This study is dedicated to our family and friends who were always there to serve as a motivation
and strength to all of us. We could not have done this without them. Their mere presence and
support were enough to keep us going.

And above all, we would like to thank God for always guiding us and for always uplifting our
spirit to push ourselves despite the hardships that we have encountered while conducting this
entire study. We would also like to dedicate this study to Him for He has always been our

Table of Contents

Page Number
Title Page 1
Acknowledgement 2
Table of Contents 3

Chapter I: Introduction
Background of the Study 5
Statement of the Problem 6
Objectives of the Study 7
Significance of the Study 7
Scope and Limitations of the Study 8
Rationale of the Study 8

Chapter II: Review of Related Literature

 TheLiterature
 GeneralInformation 9
 Methods inOtherStudies 19
 SupportforObjectives 23
 PROsand CONs 29
 Theoretical and Operational Framework of theStudy
 Theoretical Framework oftheStudy 41
 Operational Framework ofthe Study 42

Chapter III: Methodology

 Introduction 45
 ResearchDesign 45
 Localion ofthe Study 46
 Population of theStudy 46
 ResearchInstruments 46
 DataCollection Methods 47
 Questionnaires 47
 DataAnalysis 47

Chapter IV: Results and Discussions of the Data

 Introduction 51
 Biographical Characteristicsof Respondents 52
 Graphical Presentation of the Results 53
 Position ofRespondents
 Business Size
 Years ofOperation

 Usage ofBudgeting
 Responsible in Preparing theBudget
 Person in-charge for the Budget has Knowledge in Accounting
 Reasons for not PreparingBudget
 Role of Budgeting in anEnterprise

Chapter V: Summary of Findings

 Introduction 62
 Discussion of theStudyFindings 62

Chapter VI: Implications oftheFindings 65

ChapterVII:Recommendations 67

ChapterVIII:References 68

ChapterIX:Appendix 71

Chapter I


1.1 Background of theStudy

The footwear industry, just like any industries, are easily affected by many economic

changes like product innovation, trends, changes in supply and demand and any other factors

that contribute to the risks that the company faces. Due to these uncertainties, there is a

strong need for a business to manage its scarce resources efficiently and effectively for them

to prevent bigger consequences that may arise in the future. This is where the role of

budgeting takes place. Budgeting has been established as an important tool in the planning

and control processes of management. It helps the company achieve its goals for it allows

them to oversee, plan, schedule and assess its operations. Internal Control is also an

important aspect in management. It is all about managing risks that are inevitably present in

our economy. Through internal control, management can assure compliance with laws,

regulations and policies while they make ways to achieve their organizational objectives.

According to the PDF presentation provided by the SamahanngMagsasapatossaPilipinas

which provided a brief history about the downfall of the footwear industry, that in 1994

there was a plea from the footwear groups about their concern on the importation influx of

cheap goods from China (holding the 80% of the total import of footwear in the Philippines)

that they believed that it will surely affect their industry. From year 1997 to the present,

there is a rise of 212.79% with regards to import volume and the value however went down

to 70.52% without having a report of material costing being cheaper. An evenworsescenario

happened, the price of the product sold in domestic markets are not only cheap but are priced

beyond cost. Many support the idea of having exportation as a solution to this downfall but a

dilemma between pursuing that path or just thrive and stimulate the domestic demand. Once

the exportation is pursued, a question about what would they do when exportation went


This study investigated the budget control and execution of manufacturing in the

footwear industry concerns in the Philippines with a view of appraising their efficiency. This

study shall also focuses on how effectively these businesses are on using budgeting in

implementing control, if they achieve the profit or goal established in their budget. The

value of budgeting control of any organization can never be over-emphasized as these

organizations and businesses have scarce resources, and these resources impose limits on the

number of extent and range of end result the organization was set toachieve.

1.2 Statement of the Problem

Budgeting plays an effective role in achieving organizational goals, in this sense budgets are

ways through which one can reach the goals set. In budget development process one tries to

foresee whether strategic goals can successfully be reached or not. Budgets set standards to

achieve goals and help in evaluating the fluctuations occurring during the year and determine the

reasons of deviating from achieving the defined goals.

Despite budgeting process being in place in many organizations, there are yet many

organizations that are not still or have not had any intention of implementing budgeting in their

business. It is upon this issue that this study is based on. This study will make an analysis on the

footwear businesses in Liliw, Laguna and will answer the questions:

1. Are these businesses usingbudgeting?

2. How does budgeting aid in the management and achieving organizationalgoals?

1.3 Objectives of theStudy

This study on Budgeting as an instrument of internal control in footwear industry seeks

to attain the following objectives: 1.) To find out whether or not footwear business use

budgeting to show transparency in preparing budgeted cash flows. 2.) To find out if

Budgeting helps in the Footwear Businesses manage their Internal Control in terms of

operating efficiently and effectively.3.) To show the advantages and disadvantages of

making a budget.

1.4 Significance of theStudy

The findings of this study will benefit the footwear manufacturers and retailers and the

researchers as they can be aware on how budgeting plays a vital role in an industry’s long-

run, to make the students knowledgeable on the proper management of a business with

regards to internal control, make bystanders conscious of the impact of their demand to

imported goods rather than domestic ones, and those people that are engaged in a

manufacturing industry, specifically, in a Footwear Industry. Oftentimes, budgeting is

overlooked and taken for granted by the management--thinking that it should be as simple as

analyzing where your resources would go, that it should not be overly-complex. Through

this study, the management will be guided and reminded of how vital budgeting is to the

success of a business, how it plays an important role in order for management to manage its

inevitable risks that are present in our economy.

1.5 Scope and Limitations of theStudy

This study will focus mainly in defining budgeting as an essential tool for Internal

Control in the Footwear Industry. This will entail visits in different places that cater this

industry as its local business in order to gather information relative for the study. The study

will also include a number of respondents who has long been engaged in the footwear

industry. Due to financial and time-related constraints, the study is limited only to visit in

Liliw, Laguna with the hope of gathering information that are enough to reach the objectives

of the study.

1.6 Rationale of theStudy

The findings that this study will provide will help this study in terms of resolving

questions when it comes to budgeting as a tool of internal control in the footwear industry,

whether budgeting has been effective to the business in achieving the goals set for the long


Chapter II

Review of Related Literature

A. TheLiterature

I. GeneralInformation

Budgeting is the process of creating a plan to spend your money. This spending plan is

called a budget. Creating this spending plan allows you to determine in advance whether you will

have enough money to do the things you need to do or would like to do.

According to Mark A. Covaleski, John H. Evans III, Joan L. Luft, Michael D Shields

(2007) in their research entitled “Budgeting research: three theoretical perspectives and criteria

for selective integration”, budgeting is one of the most extensively researched topics in

management accounting and has been studied from the theoretical perspectives of economics,

psychology,and sociology. Thus, budgeting offers opportunities for research that chooses

between competing theories from these perspectives or combines theories from different

perspectives if they are compatible, to create more complete and valid explanations of the

causes and effects of budgetingpractices.

In the research done by Izzettin Kenis (2017) entitled “Effects of budgetary goal

characteristics on managerial attitudes and performance” identified some effects of budgetary

goal characteristics of participation, clarity, feedback, evaluation, and difficulty on job-related

attitudes (job satisfaction, job involvement, job tension), budget-related attitudes (attitude

towards budgets, budgetary motivation), and self-rated performance (budgetary performance,

cost efficiency, job performance) for 169 department managers at the plant level who have

budget responsibility. The results show that budgetary participation and budget goal clarity tend

to have positive and significant effects on job-related and budget-related attitudes of managers.

Participation and goal clarity, furthermore, were found to have significant influence on budgetary

performance of managers. High level of budget goal difficulty was found to have an adverse

effect on attitudes and performance of managers. Effects of budgetary evaluation and feedback

on attitudes and performance of managers, on the other hand, were found to be weak or


Stated by PL Joshi, Jawahar Al-Mudhaki and Wayne G Bremser (2017) in their study

entitled “Corporate budget planning, control and performance evaluation in Bahrain “ examines

budget planning; implementation and performance evaluation practices by utilizing a

questionnaire survey of 54 medium and large sized companies located in Bahrain. Most of the

companies prepare long-range plans and operating budgets, and they follow a definite budget

procedure and implementation methodology. Uses budget variances to measure a manager’s

ability, for timely recognition of problems, and to improve the next period’s budget. While both

the listed and non- listed companies have reported many similar budget practices, the main

differences were specific purposes served by budgets, degree of budget participation, periodicity

of variance reporting, and purposes and authority to evaluate budget variance reports. In certain

cases, firm size influences budgeting practices. Contributes toward filling a gap in the literature

on the use of budgets as a planning and control tool in developing countries. Most prior studies

were mainly confined to advanced countries. The study findings suggest the need for research on

attitudes held by the budgeters towards the use of budget variances in the context of advanced

management accounting techniques.

According to Jims bookkeeping (2005) budget helps one to determine their activities

for the time period specified. Of course no budget will ever be 100% accurate but it is still an

essential tool for keeping track of sales and costs and knowing what to focus on – e.g.

whether to increase marketing if sales are low, trim costs where they are too high, and so on.

In essence, it works as a framework and control mechanism for finances and cash flows.

Every business should have a clear plan and a budget – even a micro-business. It doesn’t

have to be elaborate, but it does need to define the business so one can keep it in the direction

one wants it togo.

One should also pay attention to its sales cycle. If a company has an off-season they

have to account it. According to Scranton if one knows its business has slower times, one

should have extra money in the bank during those months. The budget will never be static or

consistent. For small businesses owners, they take time to learn the cyclical nature of the

business as seasonal trends naturally affect budget and the whole organizations efficiency.

"Regularly revisiting your budget will help you better control financial decisions, because

you will know exactly what you can afford to spend versus how much you are projecting to

make," (Cho,2018)

Based on the article written by guestauthor2 (2006), he enumerated seven reasons

why a small business should set a budget: it sets targets, strategy requires funding, money

allocated for aging facilities and equipments, it communicates priorities, control spending,

eliminate turf wars, and it provides a profit margin. Budgeting is the foundation for all

business success. Budgets help with both planning and controlof the organization's financial

resources. Business planning requires making decisions about strategy and determining

business priorities. Controlling ensures that plans and objectives are achieved through

the implementation process. If there is no control over spending, planning is futile and if

there is no planning there are no business objectives toachieve.

As stated in the article written by Atom Content Marketing (2009) there are ways to

help a business flourish by having a well-planned budget. All businesses, no matter how

small, can benefit from a well-thought-out budget. It can help one control spending,

maximize its resources and head off cashflow problems before they have the potential to

harm the business. First step when working out a budget is to collect information on past

sales and costs. These will be the foundation for the forecasts, so the information needs to be

as full and accurate as possible. Speak to employees with the information needed – especially

if they’ll be responsible for managing the budget (in part or in whole) in the future. Involving

them at this early stage will also encourage them to commit to the budget. It is also well

worth asking for their opinions on where costs could be reduced or better managed, and how

to improve sales.

Gaebler Ventures (1992) elaborated the most common budgeting mistakes; one of those

mistakes is no budgeting. No budgeting is the biggest budgeting mistake for small businesses is

not to do it at all. It's like driving a car when one can only see two feet ahead of the front

bumper. Bills are coming in, checks are coming - and there's a chronic mode of juggling one

against the other with no sense of overall profitability or predictability of the future. Another one

is failure to systematize budgeting. If someone gotten to a certain size of business and don't have

written instructions on the budgeting presses, stop the assembly lines and take a time out. Get the

processes in place so that every year everyone knows what's expected of them and how the

budgeting process will play out. Unable to monitor the budget is also one of the mistakes. If one

don't compare to actual and revise it frequently, they are are missing the point of budgeting.

Budgeting should be more like clay than cement. Flexibility has to be built into theprocess.

Internal control, as defined in accounting and auditing, is a process for assuring of an

organization's objectives in operational effectiveness and efficiency, reliable financial

reporting, and compliance with laws, regulations and policies. A broad concept, internal

control involves everything that controls risks to an organization.

The article in Forbes written by Jeff Thompson (2015) entitled “The Importance of

Internal Controls” wherein an interview with Susan Maddux, a controller and director of

accounting at the Country Music Hall of Fame, was conducted; this demonstrated the

importance of internal controls in achieving operational, strategic, compliance and reporting

objectives. Accordingtothearticle,internalcontrolisdefinedasacriticalprocessinachieving

effectiveness and efficiency of the operations conducted, creating reliable financial reports,

and compliance with the internal rules and regulations. Maddux also concluded that big data

has a big impact on managing and monitoring internal controls, having the data can be a

useful tool but dangerous once held and used incorrectly or maintained in an uncontrolled

environment. The importance of budgeting to small business enterprises are emphasized by

different scholarly works. According to Annie Scranton (2017), owner of Pace Public

Relations, businesses of all sizes experience financial fluctuation, so it's important to plan

ahead."If you don't budget and save accordingly, you'll be in a bad way your company takes

a downturn or even has an off month," she said. "You have to account for slow payments,

and budgeting can help alleviate the financial burden you may feel while waiting for a check

to arrive." "A proper budget is far too important and there are too many variables for this

responsibility to fall on one person’s shoulders," said Nate Masterson, marketing manager for


In the paper entitled Internal Control and Operational Efficiency (2018), the

researchers (CHENG, Qiang; GOH, Beng Wee; and KIM, Jae Bum) examined whether

internal control effectiveness affects firm operational efficiency. Using a sample of

accelerated filers that reported internal control opinions under SOX 404 during the period

2004-2013 and frontier analysis to measure operational efficiency, we find that operational

efficiency is significantly lower for the 22 firms that disclose material weaknesses in internal

control than for other firms. This finding holds after controlling for factors associated with

operational efficiency. The result is robust to a battery of sensitivity checks. We conduct

three sets of cross-sectional analyses to provide additional insights. First, we find that the

negative effect of material weaknesses on operational efficiency is exacerbatedfor

firmswhere managers’ demand for high quality internal information for decision making is

more salient, proxied for by high ROA volatility and low trading volume. Second, we find

that the negative effect of internal control on firm operational efficiency is stronger for firms

with more severe internal control material weaknesses: (1) material weaknesses related to

information technology and accounting personnel with adequate expertise, and (ii) material

weaknesses related to core accounts (e.g., sales, cost of goods sold, fixed assets), which are

more likely to have a pervasive effect and lead to errors in the internal reports that managers

rely on to make operational decisions. Finally, we find some evidence that the effect of

internal control material weakness on firm operational efficiency varies with firm size, with

smaller firms benefitting more from effective internal controls in terms of firm operational

efficiency than other firms. It also the implications of internal control beyond financial

reporting (e.g., Cheng et al. 2013; Feng et al. 2015; Bauer 2016) the debate on the costs and

benefits of SOX 404 reporting, which is relevant and timely given that regulators have

recently granted non-accelerated filers permanent exemption from SOX 404 (b) under the

Dodd-Frank Act on grounds of high compliance costs. One implication of our study is that

the greater operational efficiency achieved from having effective internal control can

partially offset the compliance costs of SOX404.

Every business has risks involved; each of them can financially affect the business.

Paul Cho, CEO of Align Income Share Funding elaborated that businesses should consider

the short and long term risks in order to accurately plan their financial

future.Scrantonsuggests listing guaranteed income and expenses per month to understand

your risks. "This is a great baseline to figure out how liquid your company really is," she

said. "If you're making money, then you're able to at least set aside a portion for savings, or

to go toward enhancing the company through new hires, expansion, etc."

Small business entities are is an independently owned and operated company that is

limited in size and in revenue depending on the industry.According to Cheryl Conner (2018)

that cash is king! We’ve all heard this maxim and it is truer today than ever before. A

healthy profit may look nice on financial statements, but if capital expenditures or receivable

collections are draining the cash, one won’t be able to stay in business for long. Too often

executives and small business owners fail to focus enough on cash flow generation. In order

to head off this problem, businesses must either be adequately capitalized and must shore up

cash reserves to meet all obligations as they are needed and to handle downturns and

emergencies that may arise. Cash management becomes even more important during

recessionary times when cash is flowing more slowly into the business and creditors are less

lenient in extending time to pay. For small businesses, handling business accounting and

taxes may be within the capabilities of the business owners, but professional help is usually

a good idea. The complexity of a business’ books go up with each client and employee, so

getting assistance with managing cash and the bookkeeping can allow you to excel when

others are calling it quits. Cash flow challenges are exacerbated by the lending climate,

particularly for small businesses. Bankers are unlikely to be more liberal in their lending

policies any timesoon.

Acoording to Neal Frankle,CFP, (2010) “No matter how small your business is, you’ll

gain a lot by budgeting. When I started in business 30 years ago I didn’t pay much attention to

my budget as long as I had a positive bank balance. That was a huge error. As a result of

ignoring my budgeting I didn’t really know what was working or what needed my attention. In

fact, I didn’t really even know if my business was profitable or not or if it was worth it to be

independent or not until I started tracking my numbers. I was lucky. Many people who ignore

budgeting end up going out of business because of it. Don’t let this happen to you Pilgrim. Let’s

start this budgeting party rightnow.”

An article by Eddy hood (2014) is about small business budget explains that not having a

small- business budget is like driving blindfolded. “Sure, you might not have hit any bumps in

the road yet. However, to really see where you are, where you’re going, and how your business

is performing, you need a detailed, accurate, frequently updated budget. With it, you can watch

the scale tipping between income and expenses, make judgment calls on what should be cut, and

determine success,” hesaid.

The article entitled (Mark A. Covaleski, John H. Evans III, Joan L. Luft, Michael D

Shields, 2007) “Budgeting Research: Three Theoretical Perspectives and Criteria for Selective

Integration” presented evidence for the method they used for researching in budgeting. They

demonstrated on collecting data about the background of budgeting itself, focusing on three

social science theoretical perspectives where economical perspective is included. The researchers

made a table having different focal points which they focused on namely having primary

research questions, level of analysis, rationality and equilibrium assumptions, the budgeting and

non-budgeting variables.

Casual model from K.A. Merchant presented the design of corporate budgeting system if

it influences on managerial behavior and performance. He elaborated that budgeting as part of

internal control strategy is thus related to corporate context or an analysis that considers the

entire environment of a business, its internal and external environment. P. Brownell discussed

when participation in the budgeting process works and when it does not. He concluded that

participation leads to conditional factors (cultural, organizational, interpersonal, and individual)

and then to organizational effects. Using Hackman and Porter's [1968] motivation measure and a

construct for participation factor-analytically derived franFertakis' [1967] Budget- Related

Behavior Questionnaire, the hypothesis was confirmed for measures of bothintrinsic and

extrinsic motivation. The relationship between participation and attitude towards the budget

system (part of Hofstede's motivation conception) was moderated by budget difficulty.

Another study conducted by State University of Management Federal State Budgetary

Educational Institution of Higher Professional Education, Saint Petersburg State Economic

University and Gubkin Russian State University of Oil and Gas (2016), entitled Budgeting-

based Organization of Internal Control, used methodical basis of research that uses general

scientific principles to have a more comprehensive and systematic approach in order to further

understand the irregularities in our economy that greatly affect how a company uses budgeting as

an instrument of Internal Control. Examples of this scientific techniques and methods are

induction, deduction, analysis, synthesis, systems approach, determinant dependence of research

objects, comparative evaluation and SWOT analysis. Another methodological approach used as a

basis in this study is the Efficient Internal Control System which is part of the Corporate

Management Theory (Eickhof&Kreikenbaum, 1998). In order to extract a reliable feedback,

researchers of this study had incorporated active systems theories with the theories of

management anddecision-making.

The State of Delaware-Office of Management and Budget (2017) had conducted a study

entitled Budget and Accounting Policy Internal Control which paid much attention on finding

ways for them to achieve their organization’s mission and they thought

thathavinganefficientinternalcontrolisoneofthoseways.Theresearchersofthisstudy adopted the

Committee of Sponsoring Organizations (COSO) of the Treadway Commission Internal Control

Integrated Framework (COSO Framework) for Organizations to use in the assessment of internal

control as adapted by the Government Accountability Office (GAO) Standards for Internal

Control in the Federal Government issued September 2014. According to a study entitled

Gender, Trade and the Philippine Footwear Industry, authored by Ma.Gichelle A. Cruz of

University of the Philippines-Diliman, the footwear industry in the Philippines, specifically in

Marikina City, started to decline when the Philippines became part of the World Trade

Organization in 1995. Since then, the footwear industry in the Philippines has been dominated by

imported footwear brands from China, Korea and Taiwan. From 1997 to 1999, the country

imported an average of 38.5 million pairs of shoes and by 2001 to 2003, the average volume

increased to 56% or 60.2 million pairs. This only goes to show that if only Filipinos have the

heart for their own products, and if only they wouldn’t patronize imported products that much,

the Philippine footwear industry would not have been in this state that they’re in.

A study entitled Utilization of Budgets by Small and Medium Enterprises in the

Manufacturing Industry in the Cape Metropole,used a positivist paradigm.

D.D Assey (2014) discussed how important budgeting is. It is recognized as one of the

major tools for implementation of the objectives and policies of the organization. A correct and

well-planned budgeting will help a company to establish the right goals and objectives as well as

the right time frame to accomplish those goals and objectives. Based on their research there are

various types of budgeting methods that entities can use in establishing their goals and objectives

but among those budgeting methods, where flexible budgeting method is the method that best

suits a footwear business. A flexible budget calculates different expenditure levels for variable

costs, depending upon changes in actual revenue. The result is a budget that varies, depending on

the actual activity levels experienced. Actual revenues or other activity measures are entered into

the flexible budget once an accounting period has been completed, and it generates a budget that

is specific to the inputs. The budget is then compared to actual information for control purposes.

Alongside with this budgeting method is the use of proper costing method because it is

impossible to create a well-presented Flexible budgeting without a proper allocation of overhead

costs. According to the Center for Business Administration, Central University of Jharkhand,

Ranchi, India, (2017) compared to Traditional Costing System ,ABC costing system is a more

effective costing method that can be applied in a manufacturing industry for it helps managers of

the organizations to evaluate internal process of the enterprise, estimate accurate product and

customer profitability, institute superior performance measures, appraise novel investment

opportunities, set better budget allotment, initiate cost minimization procedure and establish an

efficient resource requirement plan. Principally, ABC is a two stage method for assigning

overhead costs to product units based on cost drivers at different levels of activity unlike in the

traditional costing system where a predetermined rate is used to allocate overhead costs thus it

treated all cost as a single pool of indirect cost.Center for Business Administration, Central

University of Jharkhand, Ranchi, India (2017) have made some accounting and budgeting

research in a slipper manufacturing business—the BNL, Ltd, wherein the company is

manufacturing 17 variants of slippers coded as AB, AE, AF, AT, BO, CA, CO, CL, DY, KE,

LD, NC, PH, SY, TO, TS and YS. Having a company that has several products usually needs

more than two activities in their manufacturing process and that is the main reason why each and

every activity required manufacturing those 17 footwear variants in BNL Limited are critically

analyzed and grouped into 17 homogeneous activity cost pools. It is observed that batching

(sole), mixing of raw materials, sheeting (sole), sole pressing, sole cutting, drilling, cleaning,

batching (strap), kneeding, accelerator mixing, sheeting (strap), strap pressing, strap cutting,

strap fitting, inspection and quality control, and administration are the 16 activity pools required

for production of all categories of slipper. Additionally, printing is observed as an activity pool

that is required besides the above-mentioned activities for production of AF, AT, BO, CL, DY,

SY, TS and YS kinds of slipper.

Managing a business means to plan, organize, command, coordinate, and control.

Planning is the first function of management and it is by which the companyobjectives are set

and achieved. Forecasting plays an important role in the management and it includes both

assessing the future and making predictions out of these assessments.

A budget is defined as “a stable plan for a certain period, expressed in financial terms and

that specifies the resources allocated to achieve the objective of that period, and also the

responsibilities entailed for achieving that objective” (Russu 1993). AccordingAnthony (1988)

aims of the budget and budget preparation process include:

1. Motivatingmanagers;

2. Informing managers about what is expected ofthem;

3. Obtaining a commitment ofmanagers;

4. Coordinating the various activities of an organizationand,

5. Providing standards for judging the actualperformance.

The budget remains a management tool and almost all businesses or organizations set a

budget. Improving budget preparation results to enhanced efficiency in meeting its daily

objectives and future goals. Aside from these, budget enables the company to improve

communication with investors, strengthen its credibility and obtain confidence in the market.

Alain Burlaud and Claude Simon (2008) mentioned that one of the limitations of

budgeting is based on the fact that budgeting involves dividing an enterprise into centers of

responsibility to which objectives are assigned and those responsible arejudged depending on

compliance with the budget. In this case, performance is judged based on how well they

minimize their expenses and not how well they perform on their specific jobs.Another limitation

results from the fact that complying with the budget often becomes an end in itself. Limitations

of budgeting also arise from the fact that abnormalities inbudgeted values occur due to changes

in unexpected conditions and often a product of a poor forecast and poor

managementperformance.Finally, superiors’ and subordinates’ interests vary according to the

purpose of the budget. Thus, if budget is made for the purpose of planning, these people have an

interest in high budget targets to obtain extra resources in order to achieve their goals. If budget

is used for the purpose of motivation, these people will choose to minimize their goals in order to

maximize the budget that is set for them.

Budget is a detailed plan defining or outlining the sourcing and uses of financial and

other resources of the company in a given period of time. This is the plan expressed in a

quantitative terms. Every organization or individual has to budget their scarce resources to make

the best use of such resources (time, money and energy). Owners of successful small companies

who survived and grew even in difficulteconomic times carefully planned or budget their

inventory, purchases, expansion of facilities, and even financial transactions so that they do not

over extend themselves and yet was able to meet customers’ needs. Developing a budget is a

critical step in planning any economic step in planning any economic activity both profit oriented

or not-for-profit oriented entities (Payongayong, 2006).Controlling is the process of setting

performance standards, measuring performance, periodically comparing actual performance with

standard, and taking corrective measures or actions when operations do not conform to what is

expected. Managers must exert their best effort to achieve what was planned (Payongayong,

2006).Budgets are more commonly used in large companies which usually have formal and

sophisticated budgetary systems. Most firms use budgets because they are aware of the

advantages that may be derived from budgeting such compelling periodic planning,enhancing

coordination, cooperation and communication, forcing quantification of plans and proposals,

providing a framework for performance evaluation,

enablesmembersoftheorganizationtobeawareofbusinesscosts, and directing the firm’s activities

toward the achievement of organizational

goals.Inthebudgetingprocess,specificorganizationalgoalsforeachsegment,aswell as the goals of

the organization as well as a whole are formally established and incorporated in the budgets

(Roque, 2011).

Everyone uses the word budget as if it were an all cure for financial problems of an

enterprise. However, a budget is simply a plan and specific management actions are needed to

make it a reality. It is a planning document created before anticipated transaction occurs. If

people want to make things happen, they have to plan. Once they have the plan, they are in better

control of the inertia of the past and of the unknown forces of the future. But planning alone is

not enough, control is also important. It is a process of comparing actual performance versus

budget. These two represents the key features for the management to undertake “control by

exception” (Caasi,2005).

Almost large organization used several budgeting systems as a tool in achieving better

profits by minimizing cost however; it has certain limitations that should be considered.Alain

Burlaud and Claude Simon (2008) mentioned that one of the limitations of budgeting is based on

the fact that budgeting involves dividing an enterprise into centers of responsibility to which

objectives are assigned and those responsible are judged depending on compliance with the

budget. In this case, performance is judgedbased on how well they minimize their expenses and

not how well they perform on their specific jobs.Another limitation results from the fact that

complying with the budget often becomes an end in itself. Limitations of budgeting also arise

from the fact that abnormalities in budgeted values occur due to changes in unexpected

conditions and it is often a product of a poor forecast and poor management performance.Since

budgets encompass so many different functions and are used for so

manythingsinorganizations,itisobvioustoexpectthemtohavecertainweaknesses. A group of authors

at the Cranfield School of Management made an extensive review of budgeting literature. As

part of their research, they identified 12 significant weaknesses of traditional planning and

budgeting practices. These factors fall into three principal categories and can be listed as follows

(Neely, Bourne, Adams, 2003, p.23).

B. Theoretical and Conceptual Framework of theStudy


With the assumption that budgeting application has significance in Liliw, Laguna’s footwear

industry, a diagram below has been developed to further elaborate the operational framework of the study.

This framework merges the a) Independent variable which is budgeting and b) Dependent variable, the

footwear business’ financial performance.



 ImprovedCommunication
 Accountability
 Financial Control ofInputs
 Planning andCoordination

2. Contributions of Budgeting
Application on GrowingActivities
Financial Performance
 EfficiencyMeasures
 Effectivenessin
implementation  MoreProfits
 Commitment
 Planning andCoordination  Growth

 Control

3. The relationship
between theroleof
budgeting and financialperformance

 Financial Planningand
 Productivity (outputs&

In the conceptual framework approach, which has its key issues as the historical and

institutional basis of the functioning of budgeting and the institutional characteristics that arise in

affecting the financial performance (planning, controlling of allocation of resources, improved

communication and policy outcomes), is the most appropriate framework. A micro-conceptual

analytical framework prepared was used to study situations that reflect precisely the salient

relationship of the variables within which, operated during the study. The variables are defined

as role of budgeting; contributions of budgeting on financial performance, the relationship

between budgeting and financial performance. The type of relationship they generate play a

pivotal role in structuring both strategicplanning.

Theoretical Framework

Every company, big or small, to insure profitability must promote internal control.

Internal control is a process for assuring an organization’s objectives in operational effectiveness

and efficiency, reliable financial reporting, and compliance with laws, regulations and policies.

One of the main tools to promote internal control is through a budget. A budget is an estimation

of revenue and expenses over a specified future period of time. In companies and organizations,

a budget is an internal tool used by management. However, despite the vital role budgeting plays

in the Internal Control of the company, it is often overlooked and disregarded by small business.

This study aims to influence small footwear businesses to use a budget as a means of internal


The type of budget that an entity needs to use would be based on the following, (1) Size

of the company and (2) Nature of theindustry.

Under size of the company there are two things to consider (a) Financial Stability of the

company and (b) Economic stability of the company. Financial Stability pertains to being able

to stably facilitate the smooth flow of cash funds in relation to the revenue that the company

makes relative to its liabilities and expenses; while, economic stability pertains to the

company’s ability to adapt with the changes that the market could go through in the foreseeable

future this is with respect to going concern principle of accounting. After considering the

financial stability and economic stability of the company, the next thing that a company should

take into account in using a budget is the historical performance of the company. This will

include reviewing past records of the performance of the company in terms of sales, revenue,

costs and any other financial aspects related to budgeting. The historical records of the company

will be the basis of the budget plan for it will show the pattern and trend of performance of the


Through this framework, business owners engaging in the footwear industry would have

greater understanding and leverage on how to maximize their expenses versus their desired

outcomes. These outcomes could be in the form of their vision of what the business entity should

be in the near future or it could be based on how profitable the business entity should be. They

can also assess whether their company performs in a manner they planned it to perform.


Size of thecompany


Probability that a
company will use
nternal control

of the



3.0 Introduction

The chapter was divided into research design, location of the study, population of the

study sample size, research instruments, data collection methods and data analysis

3.1 Researchdesign

The research was based on quantitative research designs. A case study was chosen as the

most appropriate research strategy. Saunders et al (2003) define a case study as “a strategy for

doing research which involves an empirical investigation of a particular contemporary

phenomenon within its real life context using multiple sources of evidence”. This fitted well with

the researchers’ intention to investigate a real life issue through a variety of data collecting

methods. The qualitative research design was descriptive in nature and enabled the researchers to

meet the objectives of the study. A statement was used to assign variables that would not

adequately be measured using numbers and statistics. This approach was adopted to enable the

researchers get and analyze relevant information concerning people’s opinions about the role of

budgeting in the internal control and financial performance of the footwear businesses in Liliw,


3.2 Location of the study

The study focused on the role of budgeting in internal control of businesses with specific

reference to Liliw’s footwear industry. Liliw is considered as the Tsinelas Capital of the

Philippines. The researchers chose Liliw’s footwear industry to know whether businesses do

budgeting and what kind of budgeting they are using. With these information, we will conclude

the effect of budgeting in the internal control and financial performance of the business.

3.3 Population of thestudy

The researcher conducted the study in Liliw’s footwear industry which had a total of 50

respondents. The researchers used a sample selected from the study population as representative

sample of the entire study population of 70-80. This selection of sample size helped the

researchers to minimize resources such as; time and money in addition to other resources.

3.4 ResearchInstruments

3.4.1 Questionnaire

According to Robson (1993), a questionnaire is commonly applied to research, designed to

collect data from a specific population or a sample from that population. Questionnaires are

commonly used as research instruments because of the distinct advantages they yield (Leary,

1995). The researchers therefore chose a descriptive research methodology and designed a

questionnaire to collect the required data.

3.5 Data collection methods

The study incorporated the use of various methods in the process of data collection in a

bid to come up with sound, concrete and credible research findings. The researchers therefore

combined the use of questionnaires and interviews in the process of collecting primary data.

3.5.1 Questionnaires:

The questionnaire is a set of questions to which the respondents were allowed to fill the

questionnaire in their own time and this made respondents feel free to give answers to sensitive

questions. The questionnaire tool collected data from the Liliw’s footwear businesses from the

study population. The questionnaire tool of data collection was chosen because it was cheap to

administer to respondents scattered over a large area and at the same time the method provides

information with maximum errors.

3.6 DataAnalysis

Data analysis was done as follows:

Data editing: Editing involved sorting of the collected information in order to get information

that was relevant to the study variables. At this stage all the responses looked through by the

researchers while writing the useful information and ignored the useless as was provided by the


Coding: after the data has been edited, it was then presented in form of tables, graphs and pie

charts after which the data was able to be ready for interpretation. Graphs and pie-charts were

developed by the use of computer packages such as Microsoft Word and Microsoft Excel.

However, qualitative data was analyzed by developing themes (headings) or sub themes, which

was derived from the study objectives.

Tabulation: After collecting all the necessary data, these data were coded and edited, analyzed

and rephrased to eliminate errors and ensure consistency. It involves categorizing, discussing,

classifying and summarizing of the responses to each question based on the various responses.

This will be intended to ease the tabulation work. It will also help to remove unwanted responses

which would be considered insignificant. Finally, a research report will be written from the

analyzed data in which conclusions and recommendations were made.

The genders of the respondents are mostly female with a total number 42 against the male

gender with only 8 respondents. The position of the respondents were mostly the ones who

manage the day-to-day affairs of the organization with a total of 26 followed by others being the

owner and the one managing the organization with a total of 18. It can be concluded that most of

the respondents were the salesladies who are working when the survey has been conducted. The

number of the employees working in each enterprise starts from the range of 1 to 4, the

respondents who has a small scale of business clarified that they have suppliers for the footwear

product and some only have 2 to 3 workers whose responsible for the products being sold. Many

of the enterprises are established for more than 11 years ago and some are just emerging within

the age of 1 to 5 years. 43 out of 50 respondents answered that they have been using budgeting

but most of them are using the informal type of budgeting. The respondents also indicated that

they’ve been using budgeting since the start of the business itself and having the owner as the

one responsible for preparing the said budget which in fact, 72% of them has knowledge about

accounting or management.

The most identified reason for not preparing budget is the lack of knowledge regarding to

what budgeting really is and this is followed by the reason that budgeting is costly to prepare.

Questioning the respondents if they believe "Budgeting has an impact in financial performance

of the business,” 48 out of 50 respondents agreed to the said statement.

49 out of 50 respondents know the advantages and consequences of budgeting which

made the respondents think of the importance of preparing and application of budgeting, thus

leading to them being convinced to prepare such. Attending seminars garnered the highest

remark on how to learn and apply budgeting.


Results and Discussions of the Data

I. Introduction

The study focused on the role budgeting in the internal control in relation to the financial

performance in Liliw, Laguna. The findings from the study were presented and analyzed

chronologically based on objectives of the study as were formulated in chapter one of this study.

This was done with the aid of computer packages like MS Word and MS Excel where by graphs

and charts were presented.

This chapter gives presentation, analysis and interpretation of the data to solve the

research problem. In the presentation of findings, tables, frequencies, percentages and pie-charts

were used to describe the findings. It is from these findings that the study helped the researchers

to draw conclusions and make recommendations that can be useful to businesses. This is an

exploratory study, which involved budgeting as an instrument of internal control in Liliw’s

footwear industry.

This study aims to expose a number of issues relating to the roles of budgeting in the

internal control of footwear enterprises, contribution of budgeting on the financial performance,

establishing the relationship between budgeting and financial performance of footwear

businesses and the limitations of budgeting in an organization.

II. Biographical characteristics of the respondents

A. Gender distribution ofrespondents

The gender distribution of respondents was established. The purpose of this is to know

how males and females as an owner/manager or as an employee who manages the day-to-day

affairs of the business, participate in enterprises and how they perceive budgeting. The study

targeted both males and females which gave a variety of findings that were not biased, making it

gender sensitive as in table 1 below.

Table 1: Showing gender distribution of respondents

Gender Frequency Valid Percent Cumulative Percent

Female 42 84 84

Male 8 16 100

Total 50 100

Source: Primary Data 2018

The study found out that the majority of the respondents were female. The number of

females who participated in the study was represented by 42(84%) as compared to 8(16%) of the

respondents who were male. This is because the footwear businesses in Liliw is being managed

by females either as the owner or a saleslady that manages the day-to-day affairs of the business

by simply following the norm that females are more hospitable and business minded than men.

Since this is a line of business which is built with a strong sense of self-advertisement, it needs

more outgoing and amiable persons. The given gender of the respondents may imply that women

could still be dominating compared to men in managing the affairs of the footwear businesses

within Liliw, Laguna.

This was analyzed as per the pie chart shown in Figure 1

Figure 1: Showing gender distribution of respondents



B. Position ofRespondent

The positions of the respondents gathered are tallied and illustrated in the figure 2 on the

next page:

Figure 2: Showing the distinction in the respondents’ positions


20 the day-to-day affairs of the
15 Managetheday-to-dayaffairsofthe

Position of Respondent

Most of the respondents were those who manage the day-to-day affairs of the business

but are not the owner. This is maybe because the owners are more focused on managing the

internal affairs of the business; this includes planning on how to boost sales, meeting with the

suppliers or their own production team, etc. thus, leaving the responsibility of customer

engagements to the employees or sales person.

C. BusinessSize

The size of the business is considered because it is a variable to be taken seriously in

having budget as a tool of internal control in a business. The business size focuses on the number

of people engaged in the business itself and belongs to the work force of the enterprise.

Figure 3: Showing the variations of the respondents’ business size

Business Size (Number of Employees)

2% 2% 2%

19% 2
28% 6
24% 10

The result plays between the ranges of 1 to 4 employees in the operation of the business,

2 being the highest gathering a number of 13 out of the 50 respondents. This will conclude how

small the industries are in the municipality of Liliw, Laguna.

D. Years of Operation

Table 2: showing years of operation

Table showing length of

service : Years
Frequency Valid Percent Cumulative Percent

1-5 18 36 36

6-10 11 22 58

11 or more 21 42 100

TOTAL 50 100

From the respondents interviewed, 42% had been operating from the range of 11 years or

more and this simply indicates that many are established and well coped up in this line of

business—footwear industry. This is quite a good experience for the respondents to be informed

and to have enough knowledge about the background of the business.

E. Use ofBudgeting

In the pool of respondents, 43 out of 50 were using budgeting. The whole 43 respondents

have been using budgeting as an instrument of their internal control since the business started. A

summary of the gathered data is illustrated in figure 4.

Figure 4

Ever UsedBudgeting



F. Responsible in Preparing theBudget

Figure 5 shows the number of respondents who are using budgeting and the person

responsible for its preparation. The summary of results is illustrated below:

Figure 5

Responsible for Budgeting


The preparation of budget is left under the hands of the owner having a number of 36 out of 43

respondents. This result shows how complex and confidential the preparation of budget in an

organization is. It is not simply just handed over to the lower employees considering the size of

the business itself.

Figure 6: Person in-charge of Preparing the Budget has Knowledge in Accounting or Management



31 of the respondents having knowledge about accounting and management give them the edge

in planning and using the budget efficiently and effectively.

G. Reasons for not PreparingBudget

This portion is based on the respondents who answered that they are not using budgeting.

The most identified reason of not preparing budget is because of it being costly, time consuming,

and that the people behind the business do not have enough knowledge about budgeting, and

thinks that it is not necessary for their business. A summary of results is illustrated below:

Figure 7

Time Consuming
4 Lack ofknowledge

3 Notnecessaryformybusiness

Reasons for not preparing budget (Answered no in Q.5)

With this result, it can be concluded that majority of the respondents opted not to use

budgeting due to lack of knowledge about the concepts and importance of budgeting.

H. Roles for budgeting in anenterprise

This aspect was covered by the study in order to establish the roles for budgeting in an enterprise

and the results were revealed as follows:

“Budgeting has an Impact in Financial Performance of the Business”

The respondents are asked if they believe in the said quotation, the results are illustrated below:

Figure 8

25 Agree

20 Strongly Agree

15 Disagree
10 Strongly Disagree
Budgeting has an impact in Financial Performance of the

I. Level of awareness of the respondents

In order to get information, all categories of people with different levels of education

were approached during the study process. This established the levels of awareness of the

respondents about the consequences and advantages of budgeting as indicatedbelow:

Figure 9


60 98%
J. Ways to Learn and ApplyBudgeting

Continuing the business and improving its efficiency through the use and application of

budgeting. There are suggested ways indicated by the researchers as options that the respondents

thought that would help them learn more and apply budgeting as an instrument of internal

control. The results of the data gathered are summarized as follows:

Figure 10

Ask Professional Budget Analyst

Search in theInternet

Enroll in a Vocational Business Related

Attend Seminars

5 Others

Ways to Learn and Apply Budgeting

Attending seminars garnered the highest number of answer which leads to a conclusion wherein

seminars is the most effective way based on the respondents’ answer


Summary of Findings


In this chapter, discussion, conclusions and recommendations are based on the findings

from chapter four. The discussion, conclusions and recommendations were done according to

major study themes in relation to the study objectives.

Discussion of the study findings

The study established that there are number of reasons for budgeting in the footwear

businesses including; planning, evaluation of performance, for control purpose and continuous

comparison of actual results against budgets to form a basis of standards. Although there are

number of businesses that claimed they have been using budgets, there are some who lack formal


Kind of Budget Prepared

The researcher further probed from the respondents the kind budget they prepare. The

analysis of the findings depicts that 86% of the respondents claimed that they practice budgeting.

Based on interviews of the researchers with the respondents, there are businesses who have

mistaken budgeting with estimating. These businesses forecast sales and expenses using their

own judgement and does not record their estimates thus lacking of formal budget.

The contribution of budgeting on the financial performance of enterprises

Based on the findings, majority or 96% of the respondents said that budgeting contributes

on the financial performance of footwear businesses as compared to 4% of the respondents who

said that budgeting does no contribution on the financial performance. The respondent who

disagreed claimed that the business’ financial performance depends on other factors like hard

work, quality of the produced products and type of business carried out but not budgeting.

In addition that budgeting performs a significant role on financial performance of

footwear businesses, those who agreed with the statement added that budgeting helps footwear

enterprises to plan on how to spent and earn funds for their expansion which later leads to higher

output, better profits and the end results is the increased financial performance.

The relationship between budgeting and financial performance of footwear enterprises

Concerning the relationship between budgeting and financial performance of footwear

businesses, it has been found that there are some relationship, as supported by 96% of the

respondents. This implied that to a large extent, budgeting has led to improvement of financial

performance of the businesses. This was based on the fact that better resources management are

done through budgeting that later leads to better financial performance adding that good financial

performance depends on a detailed good budget. Since there are large population of footwear

businesses in Liliw, and the competition between businesses are large, there are a number of

benefits of drawing up a budget in Liliw, including being better able to: manage your money

effectively, allocate appropriate resources to projects, monitor performance, meet your

objectives, improve decision-making, identify problems before they occur, plan for the future

and increase staffmotivation

On the issue of contribution of budgeting on the financial performance of footwear

enterprises, respondents stressed that, budgeting has been effective in promotion of good internal

control and financial performance. This can be seen in the way that through budgeting, costs are

managed and controlled. The business can realize when costs are high and make some

adjustments and set targets to meet their target costs and therefore contributes to the financial

performance of footwear enterprises.


Implications of the Findings

Roles of budgeting

The study concludes that there are number of reasons for budgeting in the footwear

enterprises including; planning, evaluation of performance, for control purpose, continuous

comparison of actual results against budgets to form a basis of standards, and creation of

responsibility centers in organizations.

The study concludes that budgeting performs a significant role of budgeting on the

financial performance of footwear enterprises in Liliw Laguna as it is through budgeting firms

can effectively and efficiently do their operations activities for improved financial performance.

The researcher further concludes that, budgeting system plays an important role to

business management, especially in decentralized businesses whereby such needs budget to

translate all the company's strategies into short-term and long-term plans and objectives. They

further demonstrated that, budget is one of the important tools which all managerial levels use to

plan, control firm's activities, and make the business achieve certain aim and appropriate


The contribution of budgeting on the financial performance of private firms

On the issue of contribution of budgeting on the financial performance of private firms, it

is concluded that budgeting contributes greatly on the financial performance of footwear

enterprises. This is commonly so, through that budgeting costs are managed and controlled, can

realize when costs are high and make some adjustments and that the firms can set targets top

meet through budgeting and that by doing this cost area are managed and controlled for

increased financialperformance.

The relationship between budgeting and financial performance of footwear enterprises

It can be concluded that, budgeting and financial performance of footwear businesses are significantly

related. This is because if well drafted, budgeting controls the misuse of funds, allocation of other resources and

therefore financial development which later leads to better financial performances. Still that proper planning of

funds is one of the significant roles of budgeting and that budgeting help firms to make profits after they have

especially budgeted for the government revenues and other expenses.

Advantages and disadvantages of making a budget

The researchers found out about the different advantages and disadvantages of making a budget

through in depth research and scanning through all the past scholarly works available. The list of the

advantages and disadvantages are listed below.

The advantages of budgeting include:

 Planning orientation. The process of creating a budget takes management away from its short-term,

day-to-day management of the business and forces it to think longer-term. This is the chief goal of

budgeting, even if management does not succeed in meeting its goals as outlined in the budget - at least

it is thinking about the company's competitive and financial position and how to improve it.

 Profitability review. It is easy to lose sight of where a company is making most of its money, during the

scramble of day-to-day management. A properly structured budget points out what aspects of the

business produce money and which ones use it, which forces management to consider whether it should

drop some parts of the business or expand in others.

 Assumptions review. The budgeting process forces management to think about why the company is in

business, as well as its key assumptions about its business environment. A periodic re-evaluation of

these issues may result in altered assumptions, which may in turn alter the way in which management

decides to operate the business.

 Performance evaluations. You can work with employees to set up their goals for a budgeting period,

and possibly also tie bonuses or other incentives to how they perform. You can then create budget versus

actual reports to give employees feedback regarding how they are progressing toward their goals. This

approach is most common with financial goals, though operational goals (such as reducing the product

rework rate) can also be added to the budget for performance appraisal purposes. This system of

evaluation is called responsibility accounting.

 Funding planning. A properly structured budget should derive the amount of cash that will be spun off

or which will be needed to support operations. This information is used by the treasurer to plan for the

company's funding needs.

 Cash allocation. There is only a limited amount of cash available to invest in fixed assets and working

capital, and the budgeting process forces management to decide which assets are most worth investing


 Bottleneck analysis. Nearly every company has a bottleneck somewhere, and the budgeting process can

be used to concentrate on what can be done to either expand the capacity of that bottleneck or to shift

work around it.

(Steve Bragg, February 8, 2018)

Disadvantages of making a budget:

 Inaccuracy. A budget is based on a set of assumptions that are generally not too far distant from the

operating conditions under which it was formulated.

 Rigid decision making. The budgeting process only focuses the attention of the management

team on strategy during the budget formulation period near the end of the fiscal year. For the rest of

the year, there is no procedural commitment to revisit strategy.

 Time required. It can be very time-consuming to create a budget, especially in a poorly-

organized environment where many iterations of the budget may be required.

 Gaming the system. An experienced manager may attempt to introduce budgetary slack,

which involves deliberately reducing revenue estimates and increasing expense estimates, so that he

can easily achieve favorable variances against the budget.

 Blame for outcomes. If a department does not achieve its budgeted results, the department

man anger may blame any other departments that provide services to it for not having adequately

supported his department.

 Expense allocations. The budget may prescribe that certain amounts of overhead costs be allocated

to various departments, and the managers of those departments may take issue with the allocation

methods used.

 Only considers financial outcomes. The nature of the budget is numeric, so it tends to focus

management attention on the quantitative aspects of a business; this usually means an intent focus

on improving or maintaining profitability. In reality, customers do not care about the profits of

a business – they will only buy from the company as long as they are receiving good service

and well-constructed products at a fair price. Unfortunately, it is quite difficult to build these

concepts into a budget, since they are qualitative in nature. Thus, the budgeting concept does not

necessarily support the needs of customers.

(Bethany O’Hoyt, January 29, 2014)



Based on the study findings as well as study conclusions, the researcher recommends the


 The footwear enterprises should hire employee workers who are qualified for the

improvement of financial performance. This can be done through the process of

selection and recruitment process that will help in the selection of people with skills and

knowledge that will improve on their performance due to increasedoutput.

 The municipality of Liliw should encourage footwear enterprises in developing in

particular, to always perform budgeting process. By doing this, all the owners or

managers in footwear enterprises will get to know of what is expected out of them and

to be able to adjust towards achieving it for fulfilling the firms’ goals and objectives

since budgeting serves as performance indicator, model of communication, measure of

control, means ofmotivation.

 The owners and managers should be vigilant to the changing of trends in order to apply

budgeting and to have a much better forecast. Application of proper budgeting strategy

as a tool of internal control would give better results and would eventually lead to the

fulfilment of the business’goals.

 The footwear businesses should make every move possible and grab opportunities to

grasp more knowledge in internal control, budgeting in particular. Being able to collect

new information would lead to a better inner management when it comes to funds and


 The study further recommends that human resource in footwear enterprises to always

conceive and adhere to budgeting in a positive way as it is drafted and follow its

contents in the day to day running of the firms’ activities because it contributes much to

the financial performance of firms. By doing this negative attitude of the human

resource in such enterprise will be reduced that will result into proper allocation


 The researchers recommend the Flexible Budget as the type of budget advisable for the

usage of the footwear businesses not only in Liliw but also for the other localities in the

Philippines. The flexible budget is an appealing concept because of the usage in

variable cost environment where costs are closely aligned with the level of business

activity, its performance measurement for it is a good tool for evaluating the

performance of managers, budgeting efficiency as it easily updates a budget, revenue

comparison, and its applicability.








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The budget: An Integral Element of Internal Control

Jay H. Loevy CPA,CFE

Edward Mendlowitz CPA

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Name ofBusiness:

Name of Owner(Optional):

1. Gender ofrespondent

 Male

 Female

2. Your position. Which best describes your position in theorganization?

 I am an owner and manage theorganization.

 I am an owner but do NOT actively manage the day-to-day affairs of theorganization.

 I manage the day-to-day affairs of the organization but I am NOT anowner.

 Other (pleasespecify):

3. Business size. Please indicate the number of full-time and part-time employees, including

salaried officers and executives, currently employed inyourorganization: employees

4. How long is your businessoperating?

 1-5years

 6-10years

 11 years ormore

5. Have you ever used budgeting in yourbusiness?


 NO

6. If your answer is YES in number 5, how long have you been usingbudgeting?

 Specify

7. If your answer is YES in number 5, who is the one responsible in preparing thebudget?

 Owner

 Manager

 Others,specify

8. Are the person in charge of preparing budgets has knowledge in accounting or



 NO

9. If your answer is NO in number 5, what are the reasons of not preparingbudgets?

 Costly

 Timeconsuming

 Lack ofknowledge

 Not necessary for mybusiness

 Others,specify

10. “Budgeting has an impact in financial performance of thebusiness.”

 Agree

 Stronglyagree

 Disagree

 Stronglydisagree


11. Are you aware of the consequences and advantages ofbudgeting?


 NO

12. If you are convinced to implement the use of budgeting in your business, in what ways

would you want to learn or applybudgeting?

 Ask professional budgetanalysts

 Consult the financial manager in ownbusiness

 Search in theinternet

 Enroll in a vocational business relatedcourse

 Attendseminars

 Others (pleasespecify):

The steps in preparing budget
1. Update budget assumptions. Review the assumptions about the company's business
environment that were used as the basis for the last budget, and update asnecessary.
2. Review bottlenecks. Determine the capacity level of the primary bottleneckthat is
constraining the company from generating further sales, and define how this will impactany
additional company revenuegrowth.
3. Available funding. Determine the most likely amount of funding that will be availableduring
the budget period, which may limit growthplans.
4. Step costing points. Determine whether any step costswill be incurred during the likelyrange
of business activity in the upcoming budget period, and define the amount of these costs and
at what activity levels they will beincurred.
5. Create budget package. Copy forward the basic budgeting instructions from the instruction
packet used in the preceding year. Update it by including the year-to-date actual expenses
incurred in the current year, and also annualizethis information for the full current year.Add
a commentary to the packet, stating step costing information, bottlenecks, and expected
funding limitations for the upcoming budgetyear.
6. Issue budget package. Issue the budget package personally, where possible, and answer any
questions from recipients. Also state the due date for the first draft of the budgetpackage.
7. Obtain revenue forecast. Obtain the revenue forecastfrom the sales manager, validate itwith
the CEO, and then distribute it to the other department managers. They use the revenue
information as the basis for developing their ownbudgets.
8. Obtain department budgets. Obtain the budgets from all departments, check for errors,and
compare to the bottleneck, funding, and step costing constraints. Adjust the budgets as
9. Obtain capital budget requests. Validate all capital budgetrequests and forward them tothe
senior management team with comments and recommendations.
10. Update the budget model. Input all budget information into the master budgetmodel.
11. Review the budget. Meet with the senior management team to review the budget. Highlight
possible constraintissues, and any limitations caused by funding problems. Note all
comments made by the management team, and forward this information back to thebudget
originators, with requests to modify theirbudgets.
12. Process budget iterations. Track outstanding budget change requests, and update thebudget
model with new iterations as theyarrive.
13. Issue the budget. Create a bound version of the budget and distribute it to allauthorized
14. Load the budget. Load the budget information into the financial software, so that you
can generate budget versus actualreports.

Budgeted Production

Budgeted Sales xx

Add desired ending finished goods inventory xx

Total xx

Less expected beginning finished goods inventory xx

Budgeted production xx

Budgeted Materials Purchase

Budgeted production multiply by quantity of materials

Required per unit of production xx

Add desired ending materials inventory xx

Total xx

Less expected beginning materials inventory xx

Budgeted materials purchases xx

Budgeted Merchandise Purchases

Budgeted Sales xx

Add desired ending merchandise inventory xx

Total xx

Less expected beginning merchandise inventory xx

Budgeted merchandise purchases xx

Cash Budget

Cash balance beginning xx

Add receipts xx

Total cash available before current financing xx

Less disbursement xx

Excess (deficiency) of cash available over disbursement xx

Financing xx

Cash balance, ending xx