ABSTRACT
Financial plans of many organizations are expressed in their budgets. Every organization has developed financial plans that guides in the allocating resources over a planning period. Budgetary control is an integral part of corporate planning which is calculated to achieve the objective of every organization including profitability objective. It is therefore worrisome that some manufacturing companies do not employ budgets as planning technique but just mere annual routine. Budgetary control measures set up by manufacturing organisations have a way of influencing profitability, such that if these controls are not adhered to profitability might experience a negative trend this suggest the crucial nature of budget and budgetary control in facilitating the achievement of profitability. This research work is carried out to investigate the relationship between budgetary control and organizations’ profitability and the adoption of unique budgetary control techniques in manufacturing companies in Nigeria. A survey research design method was adopted within six manufacturing companies selected randomly. Primary data was used and analyzed using correlation analysis, under the Statistical Package for Social Sciences (SPSS). The result shows that there is a positive relationship between budgetary control and profitability. It also shows that manufacturing companies adopt unique budgetary control technique. On the basis of the findings, we conclude that effective and efficient budgetary control techniques enhance profitability of manufacturing companies in Nigeria. The work recommends that; in order for manufacturing companies to increase profitability so as to remain relevant in the open market management must adhere to budgetary control and take corrective actions in areas where there are variances.
BACKGROUND TO THE STUDY
............. A budget is a plan expressed in quantitative and money terms (CIMA). Budgets need to be prepared and approved in advance of the period in which they are to be used. Budgets can include some or all of income, expenditure, and the capital to be employed. Moreover, a budget can be drawn up for an entire organization, any segment of the organization such as a department or sales territory or division, or for a significant activity such as the production and sale of a specific product.
Once financial goals are established, the budget is used to check and control operations using a budgetary control system. A budgetary control system is a system for comparing actual results with budgeted goals. Variations between actual results are investigated and analyzed. Action is taken to correct these variations while the operations continue. The budgetary control system covers all phases of business activity; production, sales, administration and finance Horace and Herrington (1998).
A budget assists managers in managing and controlling the activities for which they are responsible. By comparing the actual results with the budgeted amounts for different categories of expenses, managers can ascertain which costs do not conform to the original plan and thus require their attention. Budgets are activities within a company that are coordinated by the preparation of plans for future periods. No planning system can be successful without having an effective and efficient system of control. Budgeting is interrelated with control. The exercise of control in the organization with the help of budgets is known as budgetary control. The process of budgetary control according to Duncan (2000) includes: ...............
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TABLE OF CONTENT
CHAPTER ONE: INTRODUCTION1.1 Background to the Study 1
1.2 Statement of the Problem 4
1.3 Objective of the Study 4
1.4 Scope of the Study 4
1.5 Limitation of the Study 5
1.6 Significance of the Study 5
1.7 Research Question 6
1.8 Statement of Research Hypothesis 6
1.9 Brief Historical Background of Case Studies 7
1.10 Definitions of Term 10
References 11
CHAPTER TWO: LITERATURE REVIEW
2.1 Introduction 12
2.2 Concepts of Budgets 12
2.2.1 Functional budgets 15
2.2.2 Master budgets 15
2.2.2:1 Cash budget 16
2.2.2:2 Sales Budgets 17
2.2.2:3 Production Budgets 18
2.2.2:4 Direct Material Budget 19
2.2.2:5 Direct Labour Budget 19
2.2.2.6 Manufacturing Overhead Budget 20
2.2.2:7 Selling and Adm Expenditure Budget 20
2.2.2:8 Capital Expenditure Budget 20
2.2.3 Types of budgets 20
2.2.3:1 On the basis of type of expenditure 21
2.2.3:2 On the basis of level of activity 22
2.2.4 Alternative approach to Budgets 22
2.2.4:1 Incremental Budgeting 22
2.2.4:2 Zero Based Budgeting (ZBB) 23
2.2.4:3 Activities Based Budgeting 24
2.2.4:4 Program Planning and Budget System 25
2.2.5 Functions of Budget 25
2.2.6 Essentials of Budgeting 28
2.2.7 The Budget Administration 32
2.2.7:1 Budget Committee 32
2.2.7:2 Budget Manual 33
2.3 Budgetary Control 33
2.3.1 Importance of Budgetary Control 35
2.3.2 Objective of Budgetary Control 36
2.3.3 Budgeting Process 39
2.3.4 Benefits of Budget and Budgetary Control 41
2.3.5 Problems of Budgeting and Budgetary Control 41
2.3.6 Pre-requisites for Budgetary Control Technique 42
2.3.7 Impact of Budgetary Control System 43
2.3.8 Limitations of Budgetary Control System 44
2.3.9 Behavioral Aspects of Budgeting and Budgetary Control 45
2.4 Budgetary Control and Profitability 47
2.4.1 Effects of Budget on Profitability 51
References 53
CHAPTER THREE: RESEARCH METHODOLOGY
3.1 Introduction 55
3.2 Research Design 55
3.3 Population of the Study 56
3.4 Sample Size and Sampling Technique 57
3.5 Source of Data 57
3.5.1 Instrument for Data Collection 58
3.5.2 Description of Questionnaire 58
3.5.3 Validity and Reliability of Instruments 58
3.5.4 Administration of Instrument 59
3.6 Actual Field Work 59
3.7 Method of Data Analysis and Presentation 59
3.7.1 Correlation 60
3.8 Instrument of Data Analysis 60
3.9 Restatement of Hypothesis 61
References 62
CHAPTER FOUR: DATA ANALYSIS AND PRESENTATION
4.1 Introductions 63
4.2 Data Presentation 63
4.3 Data Analysis: section A 64
4.4 Data Analysis: Section B and C 67
4.5 Interpretation of hypothesis 74
4.5.1 Hypothesis one 74
4.5.2 Hypotheses two 76
References 78
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction 79
5.2 Summary of Work Done 79
5.3 Summaries of Findings 80
5.4 Conclusions 81
5.5 Recommendations 81
5.6 Suggestions for Further Study 82
Reference code: C091
Reference code: C091
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