ABSTRACT
This research work was focused on investigation on the use of budgeting as a tool for planning and control in a typical Manufacturing Industry like Anambra Motor, Manufacturing company (ANAMMCO LTD) The objective of the study is to slow the importance of budgeting as a tool for Planning and Control in Operations of Manufacturing Industry which this project maximization as its principle objectives. The research also aims at identifying the procedure adopted in the formulation of annual budgets of ANAMMCO LTD. Based on this, the following hypothesis were formulated for the study. The hypothesis are: 1. Managers use budgeting as a tool for planning and control in attaining the goals of the business 2. Decision making is performed in a manufacturing industry using budgeting. 3. Utilization of resources is achieved with the use of budgeting and budgetary control. Following the investigation and analyzation of data, the following finding were made: 1. The organization uses budgeting in achieving the goals and objectives. 2. The main objectives of the organization are inareimization of profit. 3. Efficiency and effectiveness of the organization’s operations is enhanced through the use of budgeting etc. From the findings, the conclusion were assured budgeting is a very essential and dispensable pool for planning and control. It is sustaining the growth and expansion of the organization.
CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Business organization need planning to achieve their aims and objectives. A thorough planning in an organization cannot be done in business without involving the act of budgeting. The job of integrating resources and tasks for goal attainment is a key function of the management of any organization and one of the effective tools of achieving these is planning. The fundamental principle of planning involves the selection of enterprise and departmental objectives as well as determination of means of achieving them. Although planning itself is not an end to success, it is believed to be an aid to it, therefore, individuals, including corporate bodies, who failed to plan, have planned to fail. Budgeting deals with making plans and monitoring activities to ascertain whether they conform to plans. Budgeting involves
The Term Paper on Budget Planning
The sales forecast predicts that CB will recover over the next 3 years. CB estimates over $100,000 more in cash and cash equivalents for year 9. This is, of course due to the increase in unit sales that is worked into the budget. It might be a better idea to underestimate rather than overestimate when it comes to cash on hand. Retaining a quality labor force has never been a problem for CB. I feel ...
co-ordination and control. Manufacturing industries can only achieve profit maximization by properly planned use of available resources. This is sustained when different activities are efficiently co-ordinate and decision taking in the organizations are result oriented. The process of setting goals and objectives to be achieved in future time and determining how these goals are to be reached is described as planning, while the process of translating this planning into financial target is what is described as short term tactical planning which is defined as “The process of preparing a short term and detailed plan of activities of an organization and converting the strategic long term plan into action”. Ray H. Garrison, in his own opinion, defined budgets thus “a budget is a detailed plan showing how resources will be acquired and used over some specific time interval. It represent a plan for the future expressed in formal quantitative terms. The act of preparing a budget is called budgeting. The use of budgets to control a firm’s activities is known as budgetary control”. Business organization strives to achieve good result in their activities, and make use of budgets. budgetary control includes the preparation of budgets, coordinating actual performance into that budgeted, and acting upon results to achieve maximum profitability. This study is aimed at finding out the budgetary process used in achieving their goals. It also aims at determining the controls applied in cost reduction and the comparison between the planned and actual performance. The centre of the study is Anambra Motor Manufacturing Company (ANAMMCO) Limited.
The Term Paper on Operational Budgeting and Profit Planning
Introduction: Why Budget? While a budget planning is a laborious process it is crucial for the success of any company. The budgeting process forces managers to be proactive in planning for the future while fostering communication and coordination within a company. Different departments must work together in order to develop a proper budget. A properly formulated budget will aid to define a ...
1.2 STATEMENT OF PROBLEM
The management has that primary duty of achieving the objective of profit maximization of the company. This goal is much hindered during the period of economic depression, which features low capacity utilization, high interest rates, and shortage of foreign exchange to buy the needed raw materials. Management faced with the problem of how to make use of available scare resources in order to achieve the objective of profit maximization. Thus, research work is intended to help in determining and in highlighting the problems that militate against the application of utilization of budgeting as a tool for planning and control in a manufacturing industry. The research work will provide solutions to the following problems: 1.
Inability of the manufacturing company’s budget to achieve the company’s objectives. 2. Insufficient appraisal of the company’s performance based on budget. 3. Inability of officers in the cost centres to conform to guidelines and attain the standard set in the organization. This is applicable to all workers. 4. Inadequate monitoring of compliance with and deviations from departmental and entire budget.
1.3 HYPOTHESIS
The following are the basis for research in the study:
1. Managers use budgeting in planning and control in attaining the goals of business. 2. Decision making is performed in a manufacturing industry using budgeting as a tool for planning and control. 3. Utilization of resources is achieved with the use of budgeting and budgetary controls.
1.4 OBJECTIVES
Budgeting, planning, control are major components for successful management in a manufacturing industry. This cover the area of responsibilities of management and provides a yardstick for measuring the level of performance of such functions of management. Hence the purpose of this study include the following: 1. To show the importance of budgeting as a tool for planning and controlling in operations of a manufacturing industry which has maximization of profit as its principal objective. 2. To identity the procedures adopted in the formulation and implementation of annual budget in ANAMMCO Ltd, Emene. 3. To determine whether there is a correlation between the type of budget implemented and their actual performance 4. The study will determine whether or not budgetary control as a management tool contributes to the improvement of managerial efficiency and high productivity.
The Research paper on Integrated Performance Management Through Effective Management Control
... characteristics of the management control process. Defenders, and companies with conservative, cost leadership strategies, find cost control and specific operating goals and budgets more appropriate ... be found in the description of the task of management control: the objective of management control is to motivate managers maximally to realize the corporate ...
1.5 SIGNIFICANCE OF THE STUDY
In the business world, the main objective is to maximize profit by providing goods and services at fair, competitive, and affordable price. No management worth its name cab ignore profit maximization, unless it will stifled out of business. Hence this study is significant with the following reasons. 1. The study will determine whether budgeting as a tool for planning and
control plays any significant role towards ensuring profitability and efficient rendering of goods and services. 2. Ascertain the roles played by the management in budgeting and whether they ensure adherence to the budget. 3. Ascertain the roles of budget as a tool for effective and efficient utilization of scarce resources. 4. The study will help future researchers on budgeting and budgetary control with emphasis on manufacturing industry.
1.6 Scope and limitation
The study of budgeting as a tool for planning and control in a manufacturing industry is focused on Anambra Motor Manufacturing Company Ltd, Emene. In carrying out the research work, the writer faced some problems. Among the major problems is the fear of job security by the Staff of the company who felt that their position in the company might be unsafe, if they grant interview without approval from the management. Again, funds available to the researcher were insufficient to cover the cost of transport in conducting the research, and cost of printing the questionnaire distribution and collection of questionnaire to and fro the respondents. These problems were well reasonably taken care of.
1.7 definitation of terms
A Budget
The Institute of Cost and Management Accounts defined budgets as “a manual quantified in monetary terms, prepared and approved prior to a defined period usually showing planned income to be generated and or expenditure to be incurred during that period and the capital to be employed to attain those objectives. Budgetary control:
This is the establishment of budgets relating to the responsibilities of top management to the requirement of a policy and the continuous comparison of actual budgeted results, either to, by individual action, the objective of that policy or to provide a basis for revision Variance:
The Research paper on Project charter, scope management, project planning
Create a Project Charter, Requirements Document & Work Break Down Structure Apply scope change management processes Demonstrate understanding of project planning through the analysis of a case study [Note: Topic Notes 4(Initiation), 5 (Project Planning) and 6 (Scope Management) provide the background to complete this assignment) PART I (68 marks) PROJECT CHARTER, WBS, SCOPE CHANGES [NOTE: Part ...
This is the difference between planned budgets and actual results. Favorable variance:
This is the excess of the budgeted result over the actual result in case of costs, but in case of revenue, it is the excess of actual result over the budgeted result. Organization:
All establishments whether government of privately owned.
1.8 background of ANAMMACO LIMITED, EMENE
ANAMMACO LTD is a joint venture between the Federal Military Government of Nigeria and Daimler Benz Ag. of West Germany. The percentage of ownership of the Federal Military Government is 60% while that of the Daimler Benz Ag. of West Germany is 40%. The company was incorporated as a limited liability company in January 17, 1977. The foundation stone was laid by the then Military Governor of Anambra State John Atom Kpera, May 12 1973. The official commissioning of the plant was done by the President of the Federal Republic of Nigeria, Shehu Shhagari on July 3 1980. The official commissioning of ANAMMCO training Centre was done Honourable Federal Minister of Education; Sylvetser Ugwu, on April 26, 1982. Official opening of ANAMMCO centre spare part department was then Federal Minister for industry on October 5, 1982. The company commenced official production in January 1981. The installation production capacity in one shift per annum in seven thousand, five hundred (7500).
The N60 million plant, which is situated, sued on 300,00 square metres site at Emene near Enugu and was built under joint partnership agreement between the Federal Government of Nigeria and Daimler-Benz Ag of West Germany to produce Mercedes Benz Trucks to meet Nigeria’s increasing demand for commercial vehicles. ANAMMCO is therefore, a logical development of the long pioneering trading from of Mercedes Benz sales and services throughout Nigeria. ANAMMCO now brings Mercedes Benz Technology and knowledge now into Nigeria, while at the same time creating over 1,300 employment opportunities; for Nigerians all of whom are being trained and assisted by a term of overseas experts and technicians.
The Business plan on Estimating Department Costs Job Production
... to ensure productivity is maintained... Budgets and financial plans are communicated to a level that ... position and table any problems within the organization. During this meeting the question 'what ... estimating department is responsible for formulating production budgets by providing quotes to Custometal's customers. ... account outside their terms. Accounts use cash flow reports to determine the amount ...
References
T. Lucey, Management Accounting: London D.P Publication Ltd, 1985, Pg. 75 P.E.Drunker, The Practise of Management, London Heinemann Publishing Co. Ltd 1963 Pg. 63 C.J. Walker, Principles of Cost Accounting, London Mac Donald
and Evans Ltd, 1976, Pg.118
Chapter two
Review of related literatures
2.1introduction
All organization, whether economic, social and political etc, make plans for the future, an organization without a plan is no longer an organization, but an uncoordinated association of individuals. Plans however, can vary greatly in their degree of sophistication and the extent to which different organization plan their future may reflect to the extent to which and organization can determine its success by having a detailed planning. This is opposed to being at the whim of fickle economic and social forces and thus relying on an ability to sense what is required. The value of budgeting to all organizations regardless of size is generally recognized that it is widely practiced by different organizations. This is as a result of uncertainty with which their activities are carried on, hence, the importance of the roles played by budgeting in such situations. All organization have limited resources and these limited resources impose limited on the number and range of goals that the organization can hope to attain. Common organizational goal include maximizing profit of achieving continual growth or ensuring the survival of the organization, avoiding risk in making investment, and performing or social services desired by others. It is with a view of achieving their organization goals that great emphasis is placed on budgeting.
Budgeting is essentially a process planning and control. A well-prepared budget provides management with a planned programme based upon investigation, study and research on the part of the entire organization. A budget, hence, serve to bring together the separate plan of different departments in an organization and provide the means of coordinating the marketing, production and financial of the organization. Definition of budgeting
The Business plan on Strategic Plan Planning Statements Organization
Strategic planning has its own language Gerald Graham Everyone, it seems, engages in strategic planning. For some organizations, the strategic plan provides zest and vigor; for others it is just a big yawn. What is the difference? Strategic planning is nothing more than first, deciding what you want to become; second, deciding how you will get there, and third, allocating resources to achieve your ...
According to Lucey, a budget can be defined as a quantitative expression of a plan of action prepared in advance of the period to which it relates.
Budget may be prepared for the business as a whole, for department, for functions such as sales and production of for financial and resource items such as cash, capital expenditure, manpower and purchase. M. O. Peter sees budget as a financial and / or quantitative statement prepared prior to a defined period of time of the policy to be pursued for the purpose of attaining a given objective.
Charles T.H. described budget as the expression of a plan of action and an aid for coordination and implementation. Budget may be formulated for the organization as a whole of for any summit. I.M. Pandey further stated that a budget is a comprehensive and coordinated plan, expressed in financial term, for the operations and resources of an enterprise for some specific period in the future. Also a budget is the plan of the firm’s expectation in the future. Mayo Association describe budget as “a plan quantified in monetary terms, prepared and approved prior to a defined period of time, usually showing planning income to be generated and/or expenditure to be incurred during that period and the capital to be employed to attain a given objective. According to T. Lucey, a budget has a number of benefits, namely: a. Regular, systematic monitoring and reporting of activities help the control of current operations. b. It provides clear guidelines for managers and supervisor and is the major way in which organization objectives are translated into specific tasks and objectives related to individual managers. c. The budgetary process is an important method communication and coordination both vertically and horizontally. d. The integration of budget makes possible better cash and working capital management from the above comments, it could be seen that a budget is a quantitative state of plans in a future period. The process of preparation is known as budgeting, which therefore the planning and controlling of the cost of a organization. 2.2features of budgets
Budgeting is a plan of action, prepared by all organization, the large medium scale business have a comprehensive system of budget prepared in a formal may. However, some medium and small firms do not have a comprehensive system of budgeting because the plans for the operation the business may be at the discretion of the managing director. A comprehensive budgeting system
consist of the preparation of a master budget with a complete package of the component, budgets consist of three main types, operating budgets, financial budgets and capital budgets. Operation budgets:
This kind of budgets express the results of the firm’s operation during the budget period. Operation budget contain expectations of “WHEN” and “HOW MUCH” with respect to such thing as revenues, expenses and net income. Operating budget is a tool that facilitates planning and controlling. Planning involves identifying and objective and determining the step for achieving these objectives. On the other hand control device in order to be effective must take cognizance of the organizational structure of the organization. Financial budgeting
Financial budgets focuses on the impact of cash operations and other factors, such as planning capital outlays for equipment. The most important component of financial budget is cash budget. The major objective of cash budget is to plan in such a way that the company always maintain sufficient cash balance to meet its needs and uses the idle cash in the most profitable manner. The preparation of the cash budget compels management to look ahead and balance its policies activities and operation. Capital budget
Capital budget according to I.M. Pandey involves the planning to acquire worth, while projects together with the timings of the estimated cost and cash flows of each project, such project require large sum of funds and have long-term implication for the firm. The capital budget are generally prepared separately from the operating budget. In many companies, these is a committee separate from the budget committee to appropriate funds for capital investment project. In the capital budgeting the profitability of each project has to be carefully evaluated.
2.3Preparation of budget:
Budgets are prepared based on plans taking into consideration external influences such as competitors activities, market share, technological, economic and political changes. The annual budgeting process in most business is important for many reasons and serves two major purposes. I the
preparation, an accounting point of view, the procedures are planned in such a way that the end result of the recording and summarizing of operations in a set of financial statement are identical in format with those result from the process of recording historical cost. The difference estimates what will happen in the future rather then what has happen in the past.
The preparation of budget requires the joint effort of all executives involved in the setting of goals and devising the policies and activating the procedures necessary to implement the goals. The procedures for formulation of a budget varies between organization. Each responsible individuals, from the lowest level may formulate his own budget and submit it through the next higher person, for incorporation into a total or master budget. Master budget may be formulated by the accountant or another executive and passed downwards for comments at all levels.
A compressive budgetary system constitutes principally following: * Sales budget
* Production budget
* Cash budget
* Purchase budget
* Pro-forma statement
* Capital expenditure budget
The sales budget
Sale budget is the usual starting point for budgeting purposes. The sales budget is significant in that it is an estimate of the revenue to be generated by the company from its operation. It as well focuses on how much is done within the company, it also serves as a tool for invention management without the sales budget the construction of the other budget would be impossible. Production budget
The production budget is geared to the sales budget and the company’s inventory policy. The production budget is first developed in units. The principal objective of the production budget is to coordinate in terms of time and quantity, the production of goods and their sales. The formula for determining the quantity to be produced id found by “Estimated sales as
shown in sales budget, plus desired stocks at end of the period, equal total unit of product required, less stock of products at the start of the period, equal to the total production units for the period. Physical units of finished production are the basis of stating the production budget. Purchasing budget:
The purchase of direct materials is department on the level of beginning inventory and inventory. The units of material to be purchased is determined thus, budgeted usage PLUS desired ending inventory (Materials) LESS beginning inventory (Material) EQUALS purchases in units. Cash budget:
Cash budget represent the cash receipts and payments and the estimated cash balance for each month of the budget period. The objective of the cash budget includes: i. To determine the available sources and amounts of capital that can be acquired. ii. To provide management with the estimates of the company short-term and long-term needs of capital iii. To coordinate the company’s financial planning with its operation plans. Direct labour budget:
This budget is an estimate of the direct cost because indirect costs are included in the manufacturing overhead cost budget. The direct labour hour to be spent in production is a function of the units to be produced and labour hours required to produce one unit. Pro-forma income statement:
Organizations preparing comprehensive budget ordinarily compare budget income statement and budgeted balance sheet. These budget financial statement are also called the pro-forma financial statements. The pro-forma income statements are prepared in some manner as the actual income statement, except that the figure represents intended rather than the achievement. Pro-forma balance sheet:
The budget balance sheet is prepared from the operation budget and the financial budgets, that is from the sales budget, production budget, purchasing budgets, direct labour and the cash budget. Master budget:
The master budget is a comprehensive budget which expresses the overall business plan for the whole organization for a period covering one year or less. The master budget is a coordinated instrument and a summary of all the financial budgets of a company, incorporating the sales, production, operation expenses and financial budget. It represents and presents the consolidation of all the supporting budgets and represents the financial effect on the total plan of the business. The master budget covers a wider scope. Master budget is actually a combination of the budgeted income statement and balance sheet and when supported by the subsidiary budgets, it is presented to the board of director for approval. On approval, it becomes the financial summary of the agreed period, usually a year.
Usually, the master budget is prepared by the budget direct director or financial controller. The pro-forma income statement is regarded by many author as the master budget. An illustration of comprehensive master budget as given by CHARLES T. HORNGREM as shown below.
Appraisal of fixed and flexible budgets
Generally, there must be an avenue for achieving and end and these avenue relate to the forms, processes and methods involved. Planning and control activities of business and organization are achieved through the preparation of various forms of budgets by which planning and control are effected. The two most widely used type of budgets are: fixed and flexible budget. However, in some cases, some organization use another types of budgeting called continuous budgeting.
T. Lucey defined a fixed budget as one which is designed to remain unchanged, irrespective of the level of output or turnover attained. The fixed budget is a single budget with no provisions for adjustment should actual activity turn out to be different from planned. As many businesses cannot predict accurately their future activities as a result of fluctuations in their mode of operations, the fixed budget is of little importance to management. If there is a significant difference between actual level of activity for purpose of performance evaluation, such situation demands that a performance report to prepared after the facts show
what revenues and cost have been at the level of activity.
A flexible budget, on the other hand estimates cost at several levels of activity. Flexible budgeting assumes that cost of labour, materials and facilities used in production vary in accordance with changes in volume of activities. The flexible budgeting system provides for adjusting the budgeted revenues and cost for the actual level of activity experienced in the budget period. Flexible budget recognize the different behavioural patterns of cost in relation to various output levels. Flexible budgeting is generally useful because the specific budget period, assists the management to choose a level or levels of activities for the planning periods. They are particularly useful for comparison and control purpose with the actual output achieved.
It would be noteworthy to state that a company with a steady production level, but seasonal uncertain sales might conveniently operate a flexible budget of sales and a fixed budget for production. The other type of budget mention previously which is known as a continuous budget also called rolling budget can be described as one which entails the continuous updating of a short –term budget by adding, say a future month or quarter and deducting the earliest month or quarter in order to make the budget reflect current conditions. This type of budget provides for revision of budgeted data based on current periods and it is mainly used for cash budgets.
In conclusion, it could be seen in a nutshell that a type of budget could be used by an organization or a combination of all the different types could be used in order to enhance effectiveness and efficiency in its operation.
2.3planning function in an organization
Planning generally recognized as a management function. According to Fayol, “To manage is to forecast and plan, to organize, to command, to coordinate and to control. Koontz also said, “Managing is an operational process initially best described by analyzing the managerial functions. The five essential management functions are: Planning, Organizing, Staffing, Directing, Leading and Controlling. It is clear that planning classified as
one of the functions of management. Operations such as selling, manufacturing, accounting engineering and purchasing may differ from one enterprise to another but the management function are common to all. The act of planning can be said to be futuristic it is done to decide in advance what is to be done and to what end, who will do what at a certain time and how it will be accomplished. Planning is done for the entire organization and specific functional areas like; finance, marketing and production.
Lucey in his view described planning as, “the formulation, evaluation and selection of strategies in voting a review of the objectives of an organization, the operating environment and threats for the purpose of preparing a long-term strategic method of attaining set objective”. Hence, when a manager talks of corporate planning, he is referring to a comprehensive business process which involves many types of planning activities. Drucker ascertained that “Corporate planning includes the setting of objectives, organizing the work, people and system to enable those objectives to be attained, motivating through planning process and decision making. From the definitions of corporate planning highlighted above, certain things are likely to be clear about the concept. These are: 1. It is futuristic link between present and future.
2. It ensures that corporate planning must be comprehensive. 3. It ensures that organizations know it exists and its principal objectives and goals are known. 4. It ensures that the organizations knows its own strengths and weaknesses, opportunities and threats posed by its environment. The definitions by Lucy and Drucker are all embracing because they view corporate planning as a complete management process which involves more than just making plans.
2.4controlling function in an organization
Planning and controlling are basic parts of the management process. Managers device future courses of actions through planning, but even the most carefully prepared plan is no guarantee of success. Therefore managers needs to make definite step or moves to keep things in the right direction. This is the function of control to complement planning by introducing corrective
actions as plans are being implemented. Fayol, in his view, described control as consisting of verifying whether activities occur in conformity with the plans adopted, instructions issued and principles established. It has the purpose of pointing out weaknesses and errors so as to prevent reoccurrence. From the above definition, control is described to be closely tied to planning at one end of the process and also to directing at the other end, control is very much related with other management function e.g. planning, organizing and directing and it follows that if the other functions were performed well, there would be little need for controls. However, in most operations, there exists deviations, misdirection and error making it necessary for the manger to apply corrective measures. As a management function, Koontz et al defined control as “The regulation of work activities in accordance with predetermined plans so as to ensure the accomplishment of the organization’s objectives”. Control of operation s through established standards, compares actual performance to these standards and correct deviations from the standards. The above definition is embracing because it presumes that there are standards by which performance is checked. It also show that control is made definite steps which must be applied regardless of the activity being managed. According to Lucey, “the purpose of control is to help in ensuring that the operations are performance of the organization conform to plan”. Steps involved in control
According to stoner, “After standards have been set there are indeed three elements or steps in the process of control. They are: 1. Measuring the performance
2. Comparing performance with the standard and ascertaining if differences occur 3. Correcting unfavourable deviations by means of remedial action. 1. Measuring performance
Once standards of performance are established, the next phase of the control function is the management of performance that has been achieved. The standards of performance need to be varied and clearly stated. Where standards are qualitative rather than quantitative, it is preferable for them to be expressed in terms of end result rather than of methods it is the establishment of certain minimum acceptable levels which serves to define the ineffective performance. Below these levels the deviation is considered
excessive and unacceptable. Measurement of performance against standards is often a difficult task and Koontz pointed out that measurement of performance against standard is not always practicable and it should ideally be on future basis and anticipated so that deviations may be detected in advance of their actual occurrence and avoided by setting of appropriate corrective measures. 2. Comparing performance with the standards
Comparism focuses on determining the amount of disagreement between set standards and actual results. In some activities, deviations from set standards may be allowed while in other cases, a slight deviation may be serious. When comparing performances, the manager’s attention should be directed to the exceptions because it is only when significant variances occur that control is called for. 3. Correcting deviations
The final element in the control process, is that of taking corrective actions, by correcting deviations, manager is assured the result are being kept in agreement with set plan. When unacceptable deviations are noticed, immediate corrective action should be administered as effective control does not tolerate unnecessary delays. Brining the deviations to the notice of the management comes under the concept of feedback which is information about the results of actions passed back to the person in charge so that the necessary change may be made.
The manager may take different corrective action such as; redrawing his plans or by modifying his goal, re-assignment of duties, additional staffing or re-staffing, better selection and training of subordinating and through better directing. The main correction method is to identify the cause of the difficulty in achieving the proposed standards and taking corrective action.
2.7budgetary control
With reference to planning, control and decision making associated with operating system and relevant information is provided by budgetary control system. The main purpose or objective of budgeting and budgetary control system is the processing of input and output data relating to physical operating units in order to produce information that will assist management
to control these operation units.
A budget may be defined as a plan quantified in monetary terms, prepared and approved prior to a define period of time. It usually shows planned income to be generated and expenditure to be incurred during that period and also capital to be employed to attain a given objective. Budgeting and control is defined by the establishment of budgets, relating the responsibilities of executives to the requirement of policy and the continuous comparizim of actual and budgeted results. This could be done to secure the objective of the policy or to provide a basis for revision.
2.8analysis of variance
The amount of any variance is the cost difference between the standard and the actual performance. Variance highlight those situations where actual results are not as planned, whether better or worse. They represent the difference between budgeted and actual performance of each element of cost and sometimes revenues. Hence, they could be referred to signposts which alert management to the deviations between actual and standard performance and faster investigation into the causes of the difference. In a case when actual results are better than expected, a favourable variance occurs. The analysis of variance enable management to concentrate on important items and to pinpoint responsibilities. This would help management to find out where the faults come from when results are poor.
Total amount of variance for any input tacto is calculated as follows: 1. Total variance = Price variance + Usage variance
Total variance is subdivided into price and usage variance
i. Price variance = (Standard price – Actual price) multiplied by Actual Quantity ii. Usage variance = (Standard Quantity – Actual Quantity) multiplied by Standard Price.
A. Material Variance
=Standard Cost-Actual Cost
=N1.00×100-N1.50×1,100
=650 Unfavourable
1. Price Variance
=Standard Cost-Actual Costx Standard Price
=1000-1,100xN1
=N100 Unfavourable
2.9additional tool for budgeting and budgetary control: zero-base budgeting (ZBB) This institute of Cost and Management Accountant defined Zero-Base Budgeting as “A method of budgeting whereby all activities are revalued each time a budget is formulated. Each functional budget start with the assumption that the function does not exist and it is Zero-Cost. Increments of cost are compared with increments of benefit for a given budgeted cost. It is cost benefit approach whereby it is assumed that the cost allowance for an item is zero, and will remain so until the manager’s responsible justifies the existence on the cost item and benefit the expenditure brings, using this method, a questioning attitude is developed whereby each cost item and its level has to be justified in relation to the way it helps to meet objectives and how the expenditure benefits the organization.
Zero-Base budget can be applied in both profit seeking and non-profit seeking organizations. This technique of budgeting was introduced in the beginning of the early 1970’s in United States of America (U.S.A) and it is aimed at reducing the cost and misuse of fund in government and government departments.
Zero-Base Budgeting provides a total approach to budgeting by starting from the beginning to appraise each function or activity, then to examine and contrast any alternatives. Thus, every item of budget expenditure must be examined critically and justified it is allowed to form part of the budget.
References
Chapter three
Research design and methodology
4.1 sources of date
In order to gather necessary information needed for this research study, we
made use of two sources from which the data were sourced.
4.2.1 Primary Sources
We obtained information from Anambra Motor Manufacturing Company, Enugu. Questionnaire were distributed to middle and senior staff members of the company. The research also oral interview for some qualified staff members of the company on a random basis.
4.2.2 Secondary Sources
We used available secondary sources of data. These include textbooks, magazines, journals, reports etc. the libraries consulted include those of the University of Ado-Ekiti, University of Lagos and the ANAMMCO library.
4.2 interview question
The interview questions were framed and distribute to the concerned respondents. Some of the questions were open-ended while others were closed-ended. The questions asked in the oral interview were structured in a manner that exposed the existence, extent and importance of budgeting as a tool for planning and control in the company. A copy of the questionnaire is contained in the appendix.
4.3 sampling and sample size
In this chapter, the data collected from the respondents in Anambra motor manufacturing company Ltd, regarding the basic issue involved in the research all presented and analyzed. A total of 31 questionnaire were distributed to various departments in ANAMMCO Ltd. The data collected during the research will be presented and analyzed in the subsequent chapter.
4.4 method of data analysis
In the analysis of the data collected, statistical methods were used for the questionnaire and the hypothesis.
4.1.1 Analysis of questionnaires:
In analysis the questionnaire, the percentage method of analyzing was used. It is found by A%=XN×100
Where:
X represent number of responses to one option of each item in the questionnaire. N represent the total number of questionnaire distributed or the population. A% represents the percentage of responses to the option to the total population.
3.1.2 Analysis of Hypothesis
The testing of the hypothesis will involve the use of Chi-square, which will be found by
X2= (0-E)2/E
Where:
O represents the observed frequency
E represents the expected or theoretical frequency
X2 represents the Chi-square.
Chapter four
Presentation, analysis and interpretation of data
In analyzing and interpreting the data collected, the researcher made the of questionnaire administered. It should be noted from the on set that primary data for the research was obtained from respondents reactions and responses to the questionnaire administered on them, the analysis of the questionnaire was carried out using the simple percentage method. 5.1 analysis of questionnaire
Question 1: Does your company employ planning and control in achieving it objective? Table 1
ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 31| 100|
NO| -| -|
TOTAL | 31| 100|
From the table, the respondents stated that the company employs planning and control in achieve in it’s objectives based on this, it is evident that ANAMMCO LTD employs planning and control in achieving its objective.
Question 2: Do you feel that the application of Budgeting as a tool for
planning and control has given your organization a competitive edge? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 26| 84|
NO| 5| 16|
TOTAL | 31| 100|
The above table can be interpreted as 26 respondent representing 84% of the respondents agreed that the application of budgeting as a tool for planning and control has given their organization a competitive edge, while 5 respondent represent 16% were of the opinion that the application of budgeting as a tool for planning and control has not given their organization a competitive edge.
Question 3: Does the use of budgeting as a tool for planning and control help your company to achieve efficiency in it operation? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 31| 100|
NO| -| -|
TOTAL | 31| 100|
The table shows that 27 respondents representing 87% stated that the use budgeting as a tool for planning and control helped the company to achieve efficiently in its operation while 5 representing 13% well of the contrary view.
Question 4: In what specific ways has the use of budgeting as a tool for planning control helped the company. ALTERNATIVE| RESPONSE| PERCENTAGE %|
Cost Reduction | 5| 16|
Better pricing policy | 3| 10|
Profit planning | 5| 16|
All of the above | 18| 58|
TOTAL | 31| 100|
From the above, we can observe that 5 respondents representing 16% representing cost reduction and profit planning has help in that light while 3 representing 10% say that budget has help the ANAMMCO LTD in better pricing policy. Finally, 18 respondent representing 58% were of the opinion
that budgeting the above (cost reduction, better pricing policy, and profit planning).
Question 5: Is decision making performed in your planning and control? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 25| 81|
NO| 6| 19|
TOTAL | 31| 100|
From the table 25 respondent representing 81% were of the opinion that decision making is performed with budgeting as a tool for planning and control while budgeting as a tool for planning and control while 6 respondent representing 19% was of a contrary view.
Question 6: Do you encounter problems is implementation of the company’s decision? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 27| 87|
NO| 4| 13|
TOTAL | 31| 100|
From the above we can observe 27 respondents representing 87% stated that the organization encounter problems on while 4 respondents representing 13% held a contrary view.
Question 7: What are there problems?
ALTERNATIVE| RESPONSE| PERCENTAGE %|
Problem of ensuring the involvement of managers | 2| 7|
Lack of proper understanding of system by managers| 5| 16| Managers pursuing their individuals goals instead of corporate goals | -| -| Others (specify) uncertainty| 24| 77|
TOTAL | 31| 100|
The above table shows that 2 or 7% the respondents were of the opinion that it is the problem of ensuring the investment of managers while 5 or 6% of the respondents stated that the problem is lack of proper understanding of the system by managers. Again 24 or 77% of the respondent stated that the problem is that of uncertainty that arises in business.
Question 8: How do you think these problems can solved?
ALTERNATIVE| RESPONSE| PERCENTAGE %|
By implementing the budget well | 18| 58|
Greater involvement of managers | 5| 16|
To highlight gain of working in line with budget| 8| 26| TOTAL | 31| 100|
The table shows that 18 or 58% of the respondents stated that the problem could be solved by implementing the budget very well. While 5 or 16% of the respondents stated the problem could be solved by insuring greater involvement of managers. However, 8 or 26% of the problems could be solved by highlighting gain of working in line with the budget.
Question 9: Does actual performance usually deviate from the budgeted level of performance? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 6| 19|
NO| 25| 81|
TOTAL | 31| 100|
From the above table, 6 or 19% of the respondent were of the opinion that actual performance usually deviate from the budgeted level of performance while 25 of 81% of the respondents were of the opinion that actual performance do not usually deviate from the budgeted level of performance, but occasionally.
Question 10: Do you agree that performance of your company depend on the effective implementation of budgeting controls? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 26| 84|
NO| 5| 16|
TOTAL | 31| 100|
The table above shows that 26 or 84% of the respondents stated. That the performance of the company depends on the effective implementation of the budgetary control while 5 or 16% of the respondent well of a contrary view.
Question 11: Are the departmental managers allowed to exercise continuous control over their departmental budgets? ALTERNATIVE| RESPONSE| PERCENTAGE %|
Yes, but with some measure of control | 20| 65|
Yes | 5| 16|
No | 6| 19|
TOTAL | 31| 100|
From the Above table, we can observed that 20 or 65% of the respondents stated that managers are allowed to exercise continuous control from top management. While 5 or 16% of the respondents maintained that managers exercise continuous control over departmental budgets. Question 12: Is utilization of resources achieved with budgeting as a tool for planning and control? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 24| 77|
NO| 7| 23|
TOTAL | 31| 100|
From the above, we observed that 24 or 77% of the respondents will of the opinion that utilization of resources can be achieved with budgeting as a tool for planning and control while 7 or 23% of respondents were of the contrary opinion.
Question 13: How would you rate that budgetary system that your organization operates? ALTERNATIVE| RESPONSE| PERCENTAGE %|
A very good one | 27| 87|
Averagely good | 2| 7|
Not so good | 1| 3|
Indifferent | 1| 3|
TOTAL | 31| 100|
The above table shows that 27 or 87% of the respondent were of the opinion that the budgetary system operate by the organization is a very good one while 2 or 7% of the respondent stated that the budgetary system is averagely good. Again 1 or 35% of the respondent were of opinion that the budgetary system were not good and indifferent.
Question 14: Would you advice other organization to make proper use of budgeting as a tool for planning and control? ALTERNATIVE| RESPONSE| PERCENTAGE %|
YES| 29| 94|
NO| 2| 6|
TOTAL | 31| 100|
From the above table 29 or 94% of the respondents were of the opinion that will advice other organization to make proper use of budgeting as a tool for planning and control while 2 or 6% were of the contrary opinion.
5.2 hypothesis testing
In this section, were are going to test the hypothesis formulated earlier in this research work. The testing of hypothesis is carried out so as to a enable the researcher to form an opinion and to draw inferences from the test such that the proved data is accepted while the other is rejected. Hypothesis 1
Null Hypothesis, H0:- Manager do not the budgeting in planning and control in attaining the goals of the business. ALTERNATIVE HYPOTHESIS H1: Manager use budgeting in planning and control in attaining the goal of the business. To test this hypothesis we shall employ the responses to question 2 and 3
%| FAVOURABLE| UNFAVOURABLE| TOTAL|
Do you led that the application of budgeting as a tool for planning and control has given your organization a competitive edge?| 26(27)| 5(2)| 3131| Does the use of budgeting as a tool for planning and control help your organization to achieve efficiency in its operations | 2727| 4(5)| | TOTAL | 53| 9| 62|
NOTE:- Favourable indicate that answer that are not in support of null hypothesis (you answer) unfavourable indicate answer that are in support of null hypothesis (No answer).
The figures that are not in parenthesis are the observed frequencies (01) while the figures in parenthesis are the expected frequencies (e1) the expected frequencies are computed thus: 31×5362= 164362=27
31×962= 27962=4.5=5
Computation of degree of freedom ∂.f
∂.f=r-1(c-1)
Where r is number of rows =2
c is the number of column =2
thus ∂.f=(2-1)(2-1)=1
X2=26-27227+27-27227+5-525+4-525
=0.0370+0+0+0.2
= 0.2730
Where x2=chi-square
01= Observed Frequencies
e1= Expected frequencies
At 5% percent level of significance and 1 degree of freedom, the critical value X2=3.841 (from chi-square table) therefore 0.2730<3.841 decision: Since the computed chi-square value of (0.2730) i.e less than the critical value x2 (3.841), we therefore accept H1 and concluded that mangers and us budgeting planning and control in attaining the goad of the business. Hypothesis 2:
NULL HYPOTHESIS H0: Decision making is performed in manufacturing industry without using budgeting as a tool for planning and control. Alternative Hypothesis, H1: Decision making is performed in a manufacturing industry using budgeting as a tool for planning and control.
To test this hypothesis, we shall employ the response to question 5 and 6. QUESTION 5 AND 6| FAVOURABLE| UNFAVOURABLE| TOTAL|
Is decision making performed in your company with budgeting as a tool for planning and control | 25(26)| 6(5)| 3131| Do you encounter problem in implementation the company’s decision | 27(26)| 4(5)| | Total | 52| 10| 62|
NOTE: Favourable indicate answer that are not in support of null hypothesis (Yes answer).
Unfavourable indicates answers that are in support of null hypothesis (No answer).
The figures that are not in parenthesis are the observed frequencies (01) which the figures in parenthesis are the expectd frequencies (e1) computation of degree of freedom ∂.f. ∂.f=r-1c-1
r is t he number of rows = 2
c is the number of column = 2
thus ∂.f=2-12-1=1
X2 (01-e1)2e1
Where x2=chi square
01=observe frequency
X2 31*5262=26, 31*1062=5
X2=(25-26)226+(27-28)226+(6-5)25+(4-5)25
=0.0385+0.0385+0.1667+0.1667
=0.4104
At 5 percent level of significance and 1 degree of freedom, the critical value x2 = 3.841 (from chi-square table).
Therefore 0.4104<3.841
DECISION: since the compound chi-square
Value 0.4104 is less than the critical and conclude that decision making performed in manufacturing industry using budgeting as a tool for planning and control. Hypothesis
NULL HYPOTHESIS H0: Utilization of resources is not achieved with use of budgeting and budgetary controls. Alternative hypothesis H1: Utilization of resources is achieved with use of budgeting and budgetary control.
To test this hypothesis we shall employ the responses to question 11 and 12. QUESTION 11 AND 12| FAVOURABLE| UNFAVOURABLE| TOTAL|
Do you agree that performance of company depends on the effective implementation of budgeting control | 26(25)| 5(6)| 3131| In utilization of resources achieved with budgeting as a tool for planning and control| 24(25)| 7(6)| 31| Total | 52| 12| 62|
NOTE: favourable indicates answer that are not in support of null hypothesis (Yes answer) unfavourable indicates answer that are in support of the null hypothesis (No answer).
The figures that are no parenthesis are the observed frequencies (01) while figure in parenthesis are the frequencies (e1).
e1=31×5062= 155062=25
31×1262=37262=6
Computation of degree of freedom (∂.f)
∂.f=r-1c-1
Where:
r is number of rows =2
c is number of column =2
∂.f=2-12-1=1
X2(01-e1)2e1
Where x2=chi square
01=observe frequency
e1=Expected frequnecy
Therefore
X2=(26-25)226+(24-25)226+(5-6)26+(7-6)26
=0.04+0.04+0.1667+0.1667
=0.4134
At 5% percent level of significance and 1 degree of freedom, the critical value X2=3.841 (From chi-square table)
Therefore 0.4134<3.841
DECISION: Since the compound chi square
Value of (0.4134) is less than the critical value X23.841, we therefore conclude and accept H1 that utilization of resources is achieved with the use of budgeting and budgetary controls.
Chapter five
Summary of findings, recommendation and conclusion
