Cost Accounting

1. Coordination

The budgetary process requires that visible detailed budgets are developed to cover each activity, department or function in the organization. This is only possible when the effort of one department’s budget is related to the budget of another department. In this way, coordination of activities, function and department is achieved.

2. Communication

The full budgeting process involves liaison and discussion among all levels of management. Both vertical and horizontal communication is necessary to ensure proper coordination of activities.

3. Control

This is the process for comparing actual results with the budgeted results and reporting upon variances. Budgets set a control gauge, which assists to accomplish the plans set within agreed expenditure limits.

4. Motivation

Budgets may be seen as a bargaining process in which managers compete with each other for scarce resources. Budges set targets, which have to be achieved. Where budgetary targets are tightly set, some individuals will be positively motivated towards achieving them.

5. Clarification of Responsibility and Authority

Budgetary process necessitates the organization of a business into responsibility and budget centres with clear lines of responsibilities of each manager. This reduces duplication of efforts.

6. Planning

It is by Budgetary Planning that long-term plans are put into action. Planning involves determination of objectives to be attained at a future predetermined time. When monetary values are attached to plans they become budgets.

 Limitations of Budgeting

• Too mush reliance may cause resistance (inflexibility) to change.
• Difficult to set levels of attainment. This may result into too tight budgets that cause loss of morale.
• Antagonism where budgets exert undue pressure.
• Budgeting control is a terminate exercise and therefore any report from investigation of variances may b of little use to the current operations.

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