Theory of Budget Costing

Theory Of  Budget Costing

Q. What is Budget ?
Ans. Budget refers to the income and expenditure statement for a specific accounting period.
It may be estimated either in quantity or in money or in both.

Q. What is Budgetary Control ?
Ans. Budgetary control is a system which use budget as a mean of planning and controlling all aspects of producing or selling commodities or services.

Q. What is functional budget ?
Ans. A functional budget is a budget which relates to any of the function of undertaking.
 Such as Sale, production, Research and Development, etc.

Q. What is cash budget ?
Ans. It is one of the important budget it is the sum total of the requirement of cash in respect of various functional budget as well as of anticipated cash receipt.

Q. What is Master budget ?
Ans. A master budget is a summary of budget incorporating its component of functional budget.
Hence, it is also known as coordinating budget. A master budget is prepare by the budget community.

Q. What is fixed budget ?
Ans. It is a budget in which target is rigid fixed. This is a forecast of the target for the incoming period, prepared well in advance.

Q. What is flexible budget ?
Ans. It is also known as variable budget. Such budget shows the expected behavior of cost of various volume level.

Objective of preparation of Budget:

Main objective of preparation of Budget are as follows:

1. It help in fulfilling the objective of business.
2. It establish coordination among various department and activities.
3. Budget identify the week point of the business so as to take necessary steps.  
4. Budget is a complete planning itself.
5. Suitable use of resources become possible.
6. It provides proper direction to the manager.
7. Budget help in control.
8. Budget control cost of production.

Advantages Of Budgetary Control:

1. It leads to maximum utilization of resources with a view to ensure maximum return.
2. It creates sense of awareness at all level of management.
3. Budgeting leads in better coordination.
4. It is a process off self examination.
5. Budgeting provide active participation of top management.

Limitation Of Budgetary Control:

1. It may be impossible to achieve budgeted target.
2. Budget may serve as constraints on managerial activities.
3. Correction and coordination of various budget is very expensive.

Q. What is Zero Based Budgeting ?
Ans. It is a new technique of budgeting and is more useful in government budgeting but can also be used in factories for non manufacturing activities.

Advantages and disadvantages of Zero Based Costing:

Advantages of Zero Based Costing:

1. It process identifies inefficient operation.
2. It is used in identification of wastage.
3. The scarce resources will be allocated more efficiently according to the priority of the program.
4. Departments budget are closely link with cooperative objective.
5. The technique can also be used for the introduction of system by Management of objective (MOB).    

Limitation/disadvantages of Zero Based Costing:

1. It required skills and trained management staff.
2. It is time consuming as well as costly.
3. It faces various operation problems during the implementation of such techniques.
4. It requires full support of top management. 

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