Budgetary control Essay Example | Topics and Well Written Essays - 1000 words

Budgetary control - Essay Example Therefore, the primary function of budgetary control is provide a benchmark for making continuous comparison of the budgeted activity with the actual performance to ensure that the budgeted results are achieved or an appropriate action is taken when there are deviations in performance. This paper examines the strengths and weaknesses of budgetary control to a business (Libby & Lindsay, 2010). One of the most important strengths of budget control is that it is based on numerical data from the financial statements and existing budgets of the company (Van der Stede, 2001). Therefore, this ensures there is consistent with decision making by following trends and previous periods performance. Moreover, in event that the data used in establishing the budgets is correct, managers will be able to make sound decisions for their units, which will eventually, translate to better performance of the business as a whole (Frow, Marginson & Ogden, 2010). That notwithstanding, budgetary control is based on budgets that are time bound. Budgets are usually prepared for a given financial period. Therefore, they enable managers to monitor actual performance by comparing it continuously with budgeted results for that period (Montana and Charnov, 2000). For instance, the production manager can compare the sales units quarterly with the production units to determine if there are deviations in terms of sales units and units produced so that an appropriate action is taken (Dunk, 2011). If for example, the production manager realizes that the units produced are much more than the demanded units, he/she can take action by reducing the units produced and noting the necessary adjustment to be made in the product budget. Therefore, this provides a benchmark for determining the validity of the numerical data and reports used in the preparation of the budgets for the purpose of budgetary