One of management's functions is to control company operations. Control consists of the steps taken by management to see that planned objectives are met. We now ask: How do budgets contribute to control of operations? The use of budgets in controlling operations is known as budgetary control. Such control takes place by means of budget reports that compare actual results with planned objectives. The use of budget reports is based on the belief that planned objectives lose much of their potential value without some monitoring of progress along the way. Just as I and your other professors give tests to evaluate your progress, top management requires periodic reports on the progress of department managers toward their planned objectives.

These budget reports provide management with feedback on operations. Budget reports are prepared as frequently as needed. From these reports, management analyzes any differences between actual and planned results and determines their causes. Management then takes corrective action, or it decides to modify future plans. Budgetary control involves the activities shown in the picture (in the cartoon picture, there is a wife standing behind the husband who is sitting in front of a computer. She says "Why bother to budget?" by which he replies, "so we can worry before we spend money as well as after we spend money.")

Pick any company of your choice and discuss in >150 words, which variance(s) you believe (is) are the most important one(s). You may focus on cost variances or variances between budgeted and actual sales revenue or budgeted and actual cash in/outflows. Please share why you feel this variances is of crucial importance and how often you believe a manager should look at the reports (e.g. daily, weekly, monthly, quarterly).

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Budgetary control A control technique whereby actual results are compared with budgets Any differences variances are made the responsibility of key individuals who can either exercise control action o... View the full answer