Question

Why would you implement budgetary controls for expenses including wages, inventory, telephone and motor vehicles? Discuss in 120 to 150 words

Answer 1

Budgetary control is preparing of budgets for various business activities. It is the regular comparison between actual income or expenses with the budgeted/planned income or expense.

According to Brown & Howard, "Budgetary Control is a system of coordinating costs which includes the preparation of budgets coordinating the work of departments and establishing responsibilities, comparing the actual performance with the budgeted and acting upon results to achieve maximum profitablility".

This can be therefore, broken down into the following features -

a. The actual income/expense is compared to the budgeted/planned income or expense.

b. To correct deviations wherever necessary. (These deviations are arrived upon by comparing budgeted/planned figures with the actual ones)

c. To set budgets/plans and make personnel of the organisation responsible or implementation.

When calculating profits, the expenses are deducted from the income. Therefore, to maximize profits, implementation of budgetary controls is essential for expenses such as wages, inventory, telephone and motor vehicles since maintaining a budget for these and at the end of the financial year, comparing the budget prepared with the actual expenses incurred with help in increasing the level of profits.