BUDGET AND BUDGETARY CONTROL IN BUSINESS

ORGANIZATIONS (A case study of Emenite Nigeria Ltd)

(08034883821 08188988835)

TABLE OF CONTENTS

Title page: - - - - - - - - - i

Approval page:- - - - - - - - ii

Dedication: - - - - - - - - iii

Acknowledgement: - - - - - - - iv

Abstract: - - - - - - - - - v

Table of contents: - - - - - - - vi

CHAPTER ONE: INTRODUCTION

1.1 Background of the Study:- - - - -

1.2 Statement of the Problem: - - - - -

1.3 Objectives of the Study: - - - - -

1.4 Research question

1.5 Research Hypothesis: - - - -

1.6 Significance of the Study

1.7 Scope of the Study: - - - - - -

1.7 Limitations of the Study: - - - - -

1.8 Definition of Terms: - - - - - -

CHAPTER ONE

INTRODUCTION

1.1BACK GROUND OF THE STUDY

A budget is a financial and a quantitative statement prepared prior to a

defined period of time of the policy to be pursued for the purpose of attaining a

given objective.

Also according to A.U. Nweze (2004) in his profit planning.

Budget is a plan quantified in monetary terms, prepared and approved prior to a

defined period of time, usually showing planned income to be generated and or

expenditure to be incurred during that period and the capital to be employed to

attain a given objective.

Furthermore a budget is an attempt made at the beginning of each

financial year to plan the profit and loss account for the year and to aim for a

definite balance sheet. This profit planning must be a well thought- out

operational plan with its financial implication expressed as both long and short

range profit plans.

In any organization where budget is used as a means of profit planning

many alternative plans have to be considered and the most profitable one will be

adopted, because where the plan chosen in great expectations, then the best use

has been made of the available resources.

On the other hand budgetary control is the establishment of policies and

the periodic review or comparison of the actual result with the budgeted

performances either to secure approval for individual action or to serve as a

remedial course of action. Budgetary control whereby actual state of affairs can

be compared with that planned for by the management, so that appropriate

action may be taken to correct adverse situation that may occur before it is too

late. It is also used to fix responsibility.

A budget systems serve the needs of management in respect of the

Judgments and decisions it is fruited to make and to provide a basis for the

management functions of planning and control. Developing a budget is a critical

step in planning any economic activity. This includes business, governmental

agencies and individuals.

Therefore businesses of all types and governmental units at every level

must make financial plans to carry out routine operations, to plan for major

expenditures and to help in making financial decisions.

On this back ground, every organization no matter nature has a plan for

the future, simply because the success of any organization depends on the level

of plan that is put into the organization.

1.2 STATEMENT OF THE PROBLEM

The main problem with budgeting is that it reflects data from the past and

present, and will only enable predictions and forecasts to be made out the

future. At the same time, numerous pressures in the job may impose constraints

upon managers, which affect the quality of information they collect. The

problem can be numerous; clearly, nothing can be forecasted with absolute

certainty. No matter what financial and marking researches take place every

organization has to take risks.

Though accounting information may reduce the unpredictability of event

in the future. It will never eliminate it.

All these can interrupt the system of budgetary control:

(1) If the actual results are completely difference from the target the budget

can loose its significance as a means of control. Whereas a fixed budget

is not able to adapt to changes, a flexible budget will recognize changes

in behaviour and can be amended to fall into line with changing

activities.

(2) Following a budget to rigidly can restrict an organization’s activities. On

the other hand, if a manager realizes towards the end of the year that his

or her department has under spent, he or she might go on spending spree.

(3) If budgets are imposed upon managers without sufficient consultation,

they may be ignored.

An appropriations budget limits expenditures to the appropriations

provided in the budget. Naturally, the amounts appropriated tend to be in line

with the expected revenues for the period. Such a system provides little in the

way of flexibility. It also has a serious defect because the control aspect is

limited to an end-of-the period comparison of actual revenues and expenditure

with those budgeted.

The fixed or fore type of budget is criticized as being a restrictive budget,

which establishes expose limits that cannot be exceeded. The future cannot be

certain, therefore, it is extremely difficult to forecast what will happen in future.

Hence, when circumstances that will alter the forecast materially occur,

an inflexible plan propels a company into trouble.

It is impossible to state the duration of a budget programme because the

longer a budget period, the more difficult it because to anticipate how general

economic conditions will affect the business of the company.

1.3 OBJECTIVES OF THE STUDY

The following objectives will be used to guide this research work.

(1)To find out the impact that budget has as an effective guide to business

growth

(2)To determine the extent to which budget is used as a means to control and

synchronize organizational personnel and functions.

(3)To determine the extent to which budget is effective when penalty/reward

is based on goal attainment.

1.4 RESEARCH QUESTION

The following are the research questions formulated for this research projects.

(1) What impact does budget have as an effective guide to business growth?

(2) To what extent is budget used as a means to control and synchronize

organizations personnel and function?

(3) To what extent is budget effective when reward/penalty is based on goal

attainment?

1.5 RESEARCH HYPOTHESIS

H0: Budgets are not an effective guide to business growth.H1: Budgets are an effective guide to business Growth.

H0: Budgets are not a means to control and synchronize organization’s personnel and functions.

H1 Budgets are a means to control and synchronize organization’s personnel and functions.

H0: Budgets are not more effective when reward penalty is based on goal attainment.

H1 Budgets are more effective when reward penalty is not based on goal attainment.

1.6 SIGNIFICANCE OF THE STUDY

This study is Budgeting and budgetary control is of great importance to a

business organization because;

The preparation of budget helps in the delegation of responsibilities to

each executive and induces early consideration of basic policies. It also

assists in the focusing of attention on the contribution which may be

made by each product and market to the total profit and reveals any

opportunity which may be made by each product and market to the total

profit and reveals any opportunity which may be made in maximizing

profit.

It provides a means of ensuring that capital invested in the business is

kept to a minimum level justifiable with the level of activities. It also

ensures that adequate liquid resources are made available at anytime.

It defines goals and objectives that can serve as benchmarks for

evaluating subsequent performance.

Better control of current operations is helped by regular, systematic

monitoring and reporting of activities.

It regulates the spending of money and expose loss, waste and

inefficiency and through this corrective action will be taken to improve

the adverse situation.

It encourages management to decentralize responsibilities without losing

control, especially where a company has many branch offices or factories.

It provides for the co-ordination of sales production and other activities of

the business and forces all members of management team to plan in

harmony and consider all relevant factors before a decision is taken.

Where budgetary control is in operation, cost consciousness is always

increased and through this means, waste and inefficiency will be reduced.

It also gives lower levels of management to also take part in the

management of the business.

It provides a means of communicating management’s plans through the

organization.

It uncovers potential bottle necks before they occur.

1.7 SCOPE OF THE STUDY.

The study of “budgeting and budgetary control” in business organizations

could have been extended to cover the whole of the accounting and financial

areas of the business organization in all the states of Nigeria and abroad. But

because of some limiting factors, the scope of the study will be limited to only

the facts on the budgeting and budgetary control in business organizations in

general and with special reference to Emenite Nigeria Limited budgeting

system.

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