Revision Notes

Budgetary control

Any system of control sets standards, measures deviations from standards and then takes corrective action. The situation is the monitored.
Budget is a plan expressed in money. Actual performance may be compared with budgeted performance.
Where sales budgets were exceeded by actual sales revenue, the variance is positive/favourable.
Where actual material costs exceeded budgeted material costs, the budget is negative/unfavourable.
Thus this is control through management by exception.
It is important to investigate the reasons behind the variances. If sales revenue was less than budgeted sales revenue this may because the price was too high/too low and/or sales volume was too low. Some variances e.g. Price setting are controllable but, for example, a price cut by a competitor would be uncontrollable - though the manager might have anticipated it.
Budgetary control is supported by cost and profit centres.
Zero budgeting is where the departmental budget is set to zero and any increase must be justified.
Zero budgeting minimises expenditure but in justifying the increase precious time and money may be wasted. (Think: any other advantages/disadvantages?)
In setting budget there should be participation and consultation with other departments to avoid budgets being seen as a 'weapon of control'. Aim for transparency so all concerned know what the target is and how it was decided.