Budget and Budgetary Control system:
Budget is a financial document prepared prior to the beginning of a financial period. It consists of a planned financial data about expected outcome for the next year. Budget document is prepared for both revenue and capital expenditure.
For manufacturing industries, budget preparation starts right from the preparation of Sales Budget.Sales department indicates expected sales target based on the past year data and future year trend. It consists of product-wise quantities and prices both. On the basis of Sales budget, Production department prepare, department-wise, process-wise budget,clearly identifying, requirement of materials, stores, spares, labor requirement, utilization of machinery and all manufacturing overhead expenses.
On the basis of sales and production budget, finance department prepare administration and sales expenses based on past year data. He also prepare detail capital expenses budget in consultation with all department head and CEO.
After compilation of all data, CFO prepares budgeted financial statements and expected requirement of finance for long term and short term bank finance
Budgetary Control System:
At the end of each month budgeted data are compared with actual and detail variance analysis statements are generated. In ERP system, statements are available on line. Analysis of significant variance will be reported to the management for future action to control cost. A forecast for the balance period is also prepared for planning and managerial decisions