9. Budgetary Systems And Types Of Budget

Question 1

Outline the objectives of a budgetary control system. (CRUMPET)

Answer 1

1. Coordination - coordinate the different activities of an organisation. This should help achieve goal congruence and is particularly important in decentralised organisations.
2. Responsibility - a budget is a way of delegating responsibility by showing managers which revenues and costs they are responsible for.
3. Utilisation - having a budget should lead to better resource utilisation.
4. Motivation - giving managers a target in the form of a budget may improve performance compared with giving them no target.
5. Planning - budgets are a financial plan.
6. Evaluation - managers’ performance is likely to be evaluated, at least in part, how they performance against the budget they are given.
7. Budgets are a means by which superiors communicate their expectations of the managers below them.