ABSTRACT
This research
work conducted with special reference to the budgetary system of Emenite
Nigeria Limited with the view to ascertain the major role budgets play in the
achievement of profitability for an organization. Budget as a profit planning
device sets standards of performance of manager, while budgetary control is a
tool implored by management to keep track of actual performance to ensure
budgeted standards are achieved. In the course of this research work 40
managers were taken as sample population. Data is obtained through personal
interview and the administration of questionnaires secondary data source is
also implored. Data collected in subject to chi-square test in order to prove
or disprove hypothesis therein. The analysis of the finding indicates that
Emenite Nigeria Limited has a formal system of budgeting and does attach
incentives for the attainment of budgetary goals.
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
1.2 Statement of the Problem: - - - - - 2
1.3 Objectives of the Study: - - - - - 4
1.4 Significance of the Study: - - - - - 5
1.5 Formulation of Hypothesis: - - - - 7
1.6 Scope of the Study: - - - - - - 8
1.7 Limitations of the Study: - - - - - 8
1.8 Definition of Terms: - - - - - - 10
CHAPTER TWO:
2.1 Literature Review: - - - - - - 11
2.2 The Concept of Budgeting and Budgetary
Control: 12
2.3 Main Types of Budget: - - - - - 17
2.3.1 Other Types of Budget: - - - - - 18
2.4 The Budget Period: - - - - - - 30
2.4.1 The Budget Committee: - - - - - 31
2.4.2 The Budget Manual: - - - - - - 32
2.5 Stages in the Budgeting Process: - - - 32
2.6 Zero Base Budgeting (ZBB): - - - - 38
2.6.1 Administration of Budget: - - - - - 41
2.6.2 Human Factors in Budgeting: - - - - 42
2.6.3
The Principal Budget Factors/Forecasting: - 44
2.6.4
Budget Education: - - - - - - 45
2.6.5 Budgeting
in the purchasing Department of
Small and Large Companies: - - - - 46
2.6.6 Relationship Between Budgetary
Control and
Standard Costing: - - - - - - 48
2.6.7 Participative Budget and Imposed Budget: - 49
2.6.8 Principal Budget/Forecasting: - - - - 51
CHAPTER TREE: RESEARCH
DESIGN AND METHODOLOGY
3.1 Research Design: - - - - - - 54
3.2 Source of Data: - - - - - - - 56
3.3 Population Size: - - - - - - 57
3.4 Sample Size and Sample Techniques: - - 58
3.5 Research Instrument: - - - - - 61
3.6 Methods of Data Analysis: - - - - - 61
CHAPTER FOUR:
PRESENTATION AND ANALYSIS OF DATA
4.1 Data Analysis (Questionnaires): - - - 63
4.2 Test of Hypothesis: - - - - - - 68
CHAPTER FIVE: SUMMARY,
CONCLUSION AND RECOMMENDATION
5.1 Summary of Findings: - - - - - 77
5.2 Conclusion: - - - - - - - 77
5.3 Recommendation: - - - - - - 78
Bibliography: - - - - - - - 80
Appendix: - - - - - - - - 81
Questionnaire: - - - - - - - 83
CHAPTER ONE
INTRODUCTION
1.1
BACK 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 objective of budgeting
and budgetary control in a business organization includes;
Þ
PLANNING - To produce detailed operational
plan for the different sectors and facets of the organization.
Þ
CO-ORDINATION-To bring together and reconcile into
a common plan the actions of the different parts of the organization.
Þ
COMMUNIATION- To provide a definite line of
communication so that all the parts will be kept fully informed of the plans
that the policies, and constraints to which the organization is expected to
conform.
Þ
MOTIVATION- To influence managerial behaviour
and motivate managers to perform in line with the organizational objectives.
Þ
CONTROLLING- To assist managers in managing and
controlling the activities for which they are responsible.
Þ
PERFORMANCE EVALUATION-
To evaluate performance by providing a useful means of informing managers of
how well they are performing in meeting targets that they have previously
helped to set out.
Þ
CLARIFICATION OF AUTHORITY AND
RESPONSIBILITY- To
make it necessary to clarity the responsibilities of each manager who has a
budget. Also to authorize the plans contained in the budget so that management
by exception can be practiced (ability to give a subordinate a clearly defined
role with the authority to carry out the tasks assigned to him). To MATERIAL pg
7-9
1.4 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.
1.5 FORMULATION OF
HYPOTHESIS
STATEMENT OF 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 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.
1.7 LIMITATIONS OF THE STUDY
Though budgeting and budgetary control
has many impressive and far reaching advantages, but it also has certain
limitations and pitfalls which the organization must consider.
According to Terry Lucey in his
costing sixth edition, (pg 386) the principal factor limiting budget is
customers demand, that is the company is unable to sell all the output it can
produce.
Other factors limiting the study are;
the system requires the co-operation and participation of all members of
management and not only that, the basis for success is executive managements
absolute adherence and enthusiasm for the budget. This is really very
important; but most often budgetary control has failed because some of the
members of management have paid lip services to its execution.
·
To install budgetary control takes time, times without
number management has become impatient and lost interest because it expects too
much within a short time, whereas the system must be explained to the
responsible officials, guided them where necessary, train and educate them in
the fundamental steps, methods and purposes of a budgetary control system.
·
Budgetary control system does not eliminate nor take
over the role of administration hence the executives should not feel confined
to a particular area, rather, it should be designed to provide detailed
information which will guide them to operate with strength and vision towards
the achievement of the organizations.
·
Looking at planning, budgeting or forecasting, one
will simply agree that there is none of these terms that can be regarded as a
science, but there is a certain amount of judgment involved.
·
Budget ignores responsibility centers in performance
evaluation.
·
It represents on ordinary tool which may not be
effective without closer supervision.
·
The need for superior executive ability in preparation
and presentation.
·
Budget may encourage interdepartmental conflicts among
divisional heads.
·
Establishment of unattainable targets or standard for
workers.
·
Lack of realistic data in budget preparation.
·
Persistent increase in the level of inflation.
·
Frequent changes in the level of technology.
·
Political instability.
·
Negative attitudinal trait of the operating managers
against the budget.
1.8 DEFINITION
OF TERMS
BUDGETARY CONTROL: According to the Chartered Institute of Management Accountants (CIMA). Budgetary
control is the establishment of budgets relating to responsibilities of
executive to the requirements of a policy and the continuous comparison of
actual with budgeted results, either to secure by individual action the
objectives of that policy or to provide a basis for its revision.
RESPONSIBILIT CENTRE- According
to Colin Drury in his management and cost accounting sixth edition (pg653).
Responsibility centre is a unit of a firm where an individual manager is held
responsible for the units performance.
BUDGEYING- According to Ugwu Chukwuma Collins
in his understanding cost accounting (2009) page 234. Budgeting is the act of
preparing a budget.
BUDGET- According to Terry Lucey in his
costing sixth edition. A budget is a quantitative statement, for a defined
period of time, which may include planned revenue, expenses, assets,
liabilities, and cash flows, which provides a focus for the organization, aids
the co-ordination of activities and facilitates control.
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