Step by Step MM-CIN Training Documentation

 

Step by Step MM-CIN Training Documentation

Topics covered:

1. Excise Transactions

2. Capital Goods Purchase

3. Returnable/ Non Returnable Gate Pass

4. Import Purchase Cycle

5. Vendor Return & Excise Reversal

1 COUNTRY INDIA VERSION

1.1 Procedure for Claiming CENVAT for Raw Materials

1.1.1 Create the Purchase Order (ME21N)

Follow standard PO creation process

1.1.2 Gate Entry (/cvs/gnt01)

Enter the PO No in the Field, and then all the items against the Po will be shown. Enter the Relevant Quantity, Enter the LR no, Vehicle No, Vendor Excise No, In the Text Enter the Transporter Name. Security ID Select from the Drop Down Menu.

Menu Path: Logistics à Materials Management à Inventory management àGoods movement à goods receipt à for purchase orderà Purchase order no. Known (MIGO)

a. Enter the PO number and click on Execute button as shown below.

b. Enter the Gate Entry No It will show the gate Entry Quantity of the in the Quantity tab in field Quantity in Unit of entry.

c. Enter receiving Storage Location in Where tab. Here check the stock type in which material is going to receive. If some text needs to be added regarding the goods receipt enter it in Text field. If it subjected to batch Management then enter the Vendor Batch No as well as In-house batch no. If you want to Split the Quantity then Click on, Then Enter the Batch, Quantity etc. After doing all these thing go to Classification Enter all the Parameter.

d. Click on Item OK Checkbox – at this point of time system will show relevant information of excise for which Excise Invoice tab will appear in the Header screen as shown below, select Only Capture Excise Invoice on this tab and put the Vendor Excise Invoice no check the Excise group.

e. Check the Excise Details related to the received material in Excise Item tab in Detail Data screen as shown below. 

Post button to save the Goods receipt, system will generate the Goods receipt Document. System will automatically update the Part I register as soon as the GR is made.

1.1.2 Post the Captured Vendor’s Excise Invoice

Go to CIN transaction

Menu Path: User menu à Indirect taxes à Procurement à Excise invoice à Incoming Excise invoice à Individual Processing à Capture/Display (J1IEX)

a. Select Post Excise Invoice and Vendor in windows above the Header.

b. Enter Goods Receipt Document number generated in STEP 2 and press ENTER or Click on Execute button.

c. Following screen will appear as shown below.

d. Enter Vendor Excise Invoice Number, Excise Invoice Date, Excise group – (or any other appropriate excise group).

e. If material had directly came from different vendor, Enter vendor code in Ship from field in miscellaneous tab.

f. If Excise Invoice is faulty and still want to take the credit for the excise invoice, enter the rejection code.

g. Check the Material Chapter Heading, Material type in Item tab in Detail Data screen.

h. Check the Quantity in Quantity tab

i. Check the Duty rate in Duty rate tab. 

j. Check duty values and Tax amount for the material in Duty value tab.

After Check Click on Simulate Button to check the G/L Entries. 

Press save button to post the entry, Excise Invoice will be captured and following screen for information will be displayed.

 

1.1.3 Display Excise Invoice

Menu Path: User menu à Indirect taxes à Procurement à Excise invoice à Incoming Excise invoice à Individual Processing à Change/Display/Post/Cancel (J1IEX)

Select Display and Vendor Excise Invoice in windows above the Header. Here you can display both the Part I and Part II entries in one document only. Check the Excise registers in which entry is made.

1.2 Procedure for claiming CENVAT for Capital Items

1.2.1 Create the Purchase Order for Capital goods

Follow standard PO creation process and note the following things

In the Account assignment category enter “F”.

The system will prompt to put the Order no as well as G/L account no in the account assignment tab.

All the other details like VAT or CST you will have to maintain. Maintain the Tax code.

Save the purchase order.

The system will prompt to put the Order no as well as G/L account no in the account assignment tab.

All the other details like VAT or CST you will have to maintain. Maintain the Tax code.

Save the purchase order.

Check the Item OK check box and press Check button in tool bar to check the entries

g. Press Post button to save the Goods receipt, system will generate the Goods receipt Document. System will automatically update the Part I register as soon as the GR is made.

l. Press Enter, following screen will appear

1.2.3 Post the Captured Vendor’s Excise Invoice

Go to CIN transaction

Menu Path: User menu à Indirect taxes à Procurement à Excise invoice à Incoming Excise invoice à Individual Processing à Capture/Display (j1iex)

a. Select Post the Excise Invoice and Goods Receipt in windows above the Header.

b. Enter Vendor Excise no generated above.

If material had directly came from different vendor, Enter vendor code in Ship from field in miscellaneous tab.

a. If Excise Invoice is faulty and still want to take the credit for the excise invoice, enter the rejection code.

b. Check the Material Chapter Heading, Material type in Item tab in Detail Data screen.

c. Check the Quantity in Quantity tab

d. Check the Duty rate in Duty rate tab.

e. Check duty values and Tax amount for the material in Duty value tab.

f. Check the Part I entries, which are created immediately after the GR in Part I tab.

h. Tick the Item OK check box and Press button to check the entries.

i. Press save button to post the entry, Excise Invoice will be captured and following screen for information will be displayed.

1.2.4Display Excise Invoice

Menu Path: User menu à Indirect taxes à Procurement à Excise invoice à Incoming Excise invoice à Individual Processing à Change/Display/Post/Cancel

Select Display and Vendor Excise Invoice in windows above the Header. Here you can display both the Part I and Part II entries in one document only. Check the Excise registers in which entry is made. 

1.4 Sub-contracting without Payment of Excise Duty

When you issue materials to a subcontractor, you need to keep track of what materials you have issued and when they have to be returned by.

The reason for this close monitoring has to do with India’s tax law. Under excise law 57AC, when you send materials to a subcontractor for processing, you are not required to pay any excise duty, even though the materials have left your premises. However, if the materials have not been returned to you within a given length of time specified by the law (in 2000, 180 days), you will have to reverse any excise credit that you posted when you purchased the materials. In the case of materials that you have manufactured in-house, you will have to post credit entries to the extent of the CENVAT rate of the assessable value of the materials.

1.4.1 Create Sub-Contracting Purchase order with Reference of Purchase Requisition

To create a subcontract order, proceed as follows:

1. Purchase Requisition will create automatically through Maintenance Order (IW31)

2. Purchase Requisition will have the reference of Maintenance Order.

3. Create Purchase Order with reference of Purchase Requisition (ME21N)

4.     Release the Purchase Order (ME28)

4. Check and Save the Purchase Order.

1.4.2 Create Gate Pass (Returnable/ Non Returnable) for the materials sent out for Fabrication/ Servicing/ Irradiation, etc…

1. Enter Transaction code ZRGP on comm.-and field

2. Select Create from Pull down list, Issue and Purchase Order from another pull down list.

3. Enter the subcontracting purchase order number

4. Enter all the details in the header

5. After posting Gate Pass, to take Print Out, Choose Display à Issue à Gate Pass in ZRGP only, here put Gate Pass No. & press Enter then choose Edit à Print, Here You can see Print Preview & then take print out.

1.4.3 Post Goods Receipt (MIGO) or Service Entry Sheet (ML81N)

Menu Path: Logistics à Materials Management à Inventory management àGoods movement à goods receipt à for purchase orderà Purchase order no. Known (MIGO)

Enter the Purchase Order number & Create Service Entry Sheet as per the Method suggested in User Manual of Services.

1.4.4 Reconcile Gate Pass

1. Enter the Transaction code ZRPP on command field

Enter the following data:

1.4.5 Gate Pass Reports

You use this report to get a list of Gate Pass (subcontracting challans). Depending on what selection criteria you enter, you can use it for finding out:

Enter Transaction code ZRGP on Command Field

a) Which challans are still with the subcontractor and are due back the following week

b) Which challans you can make a re credit for

c) Quantity issued to Vendor

d) Quantity Received from Vendor

1.4.6 Change Gate Pass

Enter the Transaction Code ZRGP on Command Field

Enter the challan number select

The challan is displayed.

1.4.7Display Gate Pass

Enter the Transaction Code ZRGP on Command Field

Enter the challan number select

The challan is displayed.

SUBCONTRACTING SCENERIO (SLITTING PURPOSE)

Crate a PO putting Item Category L. Put the Material which will come from the Vendor Site.

In the Component put the material, which you are providing to the Vendor

 Save the PO. Note the PO no.

Then Goto MB1B Transaction Click on to Purchase Order. Put the Purchase Order. Then Click on Adopt Details. 

Put The Batch No here, which you are going to provide to the Vendor. Then save it. Note Down the Material Document NO (490000000684)

If it is Excisable then Create a Subcontracting Challan (J1IF01). In Subcontracting challan creation put the Material Document which is created during the MB1B code(490000000684).

Enter the Following thing.

 

If the Material Assessable Value isn’t maintained then maintain it on J1ID.

Then Post the Document.

After Doing all these thing Repeat the Step for creating a Returnable Gate Pass, which has been already described. Then Perform the Gate Entry as Mentioned above. Do the GR in MIGO (T code). Put the Purchase order no.

Enter the Quantity, Batch no for the Incoming as well as Consumed Material. 

Reconciliation of Subcontracting Challan (J1IFQ)

Enter the Material Document which was created during GR (5000000274)

1.5 Procedure for Claiming CVD benefit for Imported Material.

1.5.1 Create Purchase order for imports

Create a purchase order for the materials that you want to order using the standard procedure as mentioned in above documentation but when you fill out the item information.

Conditions tab

Select the countervailing duty (CVD) condition .

a. In the Rate field, enter the Rate of CVD that will be levied on the material when it arrives at customs. 

b. In the Vendor field, enter the vendor master record that you have created for the customs office.

To do this, select the CVD condition, which is marked by arrow, and then press button in the conditions tab.Enter the custom vendor number in the vendor field.

Enter the custom vendor number in the vendor field.

The vendor ships the goods to you.

When the goods arrive in India, they go through customs. The customs officers issue a bill of entry for the goods, which is in effect an invoice for the CVD on the goods. Once they have inspected the goods, they send them on to you.

1.5.2 Entering invoices for Bill of Entry (MIRO)

The goods arrive at your plant, together with the bill of entry. In order to record the bill of entry in the system

The excise clerk enters an invoice for the bill of entry.

To enter the invoice for bill of entry follow standard invoice verification procedure but make sure you observe following

Header Data

• Basic data tab

• In the Amount field, enter the amount of countervailing duty (CVD) stated on the bill of entry in rupees. Also enter the amount of other custom duties if any.
• Do not enter any other taxes.
• 
  
   
• • Assuming you specified in the purchase order that the CVD was to be paid to the customs office, the system shows the customs office as the vendor. If not, enter the customs office’s vendor master record in the Inv. party (Invoicing party) field.
  • 
    
    
    

 Items

On the PO reference tab, enter data as follows:

Enter the number of the purchase order related to this delivery.

If you only created one purchase order for the goods, enter the purchase order number and select planned delivery costs.

If you sent more than one purchase order to the vendor and it sent you all of the ordered materials together in one shipment:

ii. Enter all of the purchase order numbers in the table.

iii. Select planned delivery costs.

iv. Select Deliveries and deselect Returns.

In both cases, the system displays the line items in the line item overview

For each line item:

In the Amount field, enter the amount of CVD on the item (if you have more than one item, you may have to work the amount out manually).

In the Quantity field, enter the quantity of goods on the invoice.

Enter a zero-rated tax code.

A dialog box appears with a list of the postings that will be made to Financial Accounting (FI).

Note down the document number (CUSTOM Invoice number)

Perform The Gate Entry Process As per above Mentioned

1.5.3 Capturing Excise invoice (Bill of Entry)– (J1IEX)

Menu path: India ® Excise Invoice ® Procurement ®Localisation menu (J1ILN)   Capture/Display.® Individual Processing ®Incoming Excise Invoice 

In the top line:

Select Capture Excise Invoice

Select Purchase Order.

Enter the purchase order related to the bill of entry.

Choose

A dialog box appears.

3.     Enter the number of the invoice that you entered for the bill of entry and choose

If you need to enter any other purchase orders, enter the number in the top line as for step 3.

Note that this time; you do not need to enter the invoice number.

Enter other data as required.

Note that the countervailing duty is displayed in the basic excise duty fields.

Enter the bill of entry number and date in the excise invoice number and Doc date field respectively.

Capture The Excise Invoice By Entering the Vendor Excise Invoice no at the time of GR

Post Cenvat (J1iEX) By Entering the Invoice no

After doing it, do the Simulation

After Simulation, the system posts the CENVAT (CVD Amount) and creates a corresponding entry in Part II or the appropriate excise register

1.6 Creation of Excise Registers – (J1I5)

You follow this procedure to create the excise registers.

Three steps are to be followed for creation and printing of the excise registers   

1.6.1 Updating of Registers (RG23 A).

The updating of registers includes receipts and issues.

The classification of receipts and issues is done by selecting the appropriate classification as per the table given below.            

 

1.6.1.1 Receipt updating of Registers (RG23A)

Menu Path: India Localisation menu (J1ILN) à Indirect Taxes -> Registers ->Excise Tax -> Update RG 23A/C Issues and RG 1.

On the selection screen, you specify

• Which documents you want to cover:

• Enter general organizational details in the Company details group box.
• Enter details about the documents that you want to include in the register, in the Document header and Document details group boxes.

Select movement type 101 and storage location.

Also select appropriate classification type (RMA) in case of receipt from manufacture.

1.6.1.1 Receipt updating of Registers (RG23A)

Menu Path: India Localisation menu (J1ILN) à Indirect Taxes -> Registers ->Excise Tax -> Update RG 23A/C Issues and RG 1.

On the selection screen, you specify

• Which documents you want to cover:

• Enter general organizational details in the Company details group box.
• Enter details about the documents that you want to include in the register, in the Document header and Document details group boxes.

Select movement type 101 and storage location.

Also select appropriate classification type (RMA) in case of receipt from manufacture.

Select register RG23 A, in the Registers group box

First select entries & click on Simulate icon.

The signal becomes

Then put tick in checkbox and select for updating the register.

Register is updated and the screen looks as given below.

1.6.2 Data Extraction– J2I5

Menu path: India localization menu à Indirect taxes à Registers à Excise Tax à Extract (J2I5)

On the selection screen enter the excise group, start date (of the month) and end date (of the month) and select the registers for which the data extraction is required.

1.6.3 Register printout– J2I6

You use this report to print out your excise registers.

Menu path: India localisation menu à indirect taxes à Registers à Excise Tax à Print utility program (J2I6)

On the selection screen select the registers which are to be printed.

Select

On the selection screen select the excise group, start date (of the month) and end date (of the month). 

Select

Select suitable printer and print the register.

1.7        Procedure for creating Excise Invoice for vendor returns

1.7.1 Create Return Delivery Documents through MIGO

Menu Path: Logistics à Materials Management à Inventory Management à Goods Movement à MIGO-Goods Movement (MIGO)

Indicates the business transaction that you want to enter in the system and give the Original GRN Document number

Enter the Quantity to be return on Quantity Tab

Enter the Reason for movement on where Tab and movement type is 122 for Return Delivery to vendor

 

Select the Goods Issue Indicator IPD 

 

 In Excise Invoice tab Header Level, only Part I Entry will be maintained.

Check and Post the Document 

1.7.3 Create and Post Excise Invoice for vendor with ref of Return Delivery Documents

Menu path: India localisation menu à Indirect taxes à Sales/Outbound Movements à Excise Invoice à For Other Movements à Excise Invoice for Other Movements (J1IS)

Here Click on Create Icon first to create Outgoing Excise Invoice

Enter the Reference document number, Reference document type, Document year, and Series group, Excise group and Vendor number.

For the material the Net Assessable Value, Base Value and all Excise duties will pick automatically from Vendor’s Excise Invoice captured & posted already at the time of GRN.

 Press Enter, you will get next screen as below. Click on “Create text” icon to maintain following details

1. LR No.

2. Vehicle No.

Here select each option to maintain the desired data as following & click on “Details” icon.

Here maintain desired data as per your requirement & save the text

After saving you will get following result. Note down the Excise Invoice No.

 

   To see the documents already posted, go to Display Mode

Here Enter Internal Doc. Generated in background for the Excise Invoice created.

Here click on accounting tab to see the Accounting Entries generated. 

Menu path: India localisation menu à Indirect taxes à Sales/Outbound Movements à Excise Invoice à For Other Movements à Post and Print (J1IV) 

Enter the Series group, Output type JEXC (Standard) and Excise Transaction Type is OTHR and Execute

    

 

Select the Excise invoice number to get Print. 

Click Print Icon to get the Print out or click display icon to see the Print Preview.

 

 

Thought

मैने अपनी पीडा किसी को नहीं बताई क्योंकि मेरा मानना है की इनसान में इतनी ताकत हमेशा होनी चाहिए कि अपने दुख, अपने सघषो से अकेले जूझ सके। 

CAR/CRAR- Capital Adequacy Ratio/ Capital to Risk Weighted Asset Ratio

 

CAR/CRAR- Capital Adequacy Ratio/ Capital to Risk Weighted Asset

Ratio

· RWA- Risk Weighted Assets

 

 

Formulae for CAR=Total Capital

                                     RWA          *100

 

 

Now here, Total Capital= Tier1+ Tier2 capital

CAR/CRAR- Capital Adequacy Ratio/ Capital to Risk Weighted Asset

Ratio

· RWA- Risk Weighted Assets

Formulae for CAR=

                                  RWA*100

Now here, Total Capital= Tier1+ Tier2 capital

Budgetary Control in Organization

Budgetary Control in Organization: Meaning, Definition, Objectives, Essentials and Other Details!

Meaning:

 

Budgetary control is the process of determining various actual results with budgeted figures for the enterprise for the future period and standards set then comparing the budgeted figures with the actual performance for calculating variances, if any. First of all, budgets are prepared and then actual results are recorded.

 

The comparison of budgeted and actual figures will enable the management to find out discrepancies and take remedial measures at a proper time. The budgetary control is a continuous process which helps in planning and co-ordination. It provides a method of control too. A budget is a means and budgetary control is the end-result.

Definitions:

 

“According to Brown and Howard, “Budgetary control is a system of controlling costs which includes the preparation of budgets, coordinating the departments and establishing responsibilities, comparing actual performance with the budgeted and acting upon results to achieve maximum profitability.” Weldon characterizes budgetary control as planning in advance of the various functions of a business so that the business as a whole is controlled.

 

J. Batty defines it as, “A system which uses budgets as a means of planning and controlling all aspects of producing and/or selling commodities and services. Welsch relates budgetary control with day-to-day control process.” According to him, “Budgetary control involves the use of budget and budgetary reports, throughout the period to co-ordinate, evaluate and control day-to-day operations in accordance with the goals specified by the budget.”

 

From the above given definitions it is clear that budgetary control involves the follows:

 

(a) The objects are set by preparing budgets.

 

(b) The business is divided into various responsibility centres for preparing various budgets.

 

(c) The actual figures are recorded.

 

(d) The budgeted and actual figures are compared for studying the performance of different cost centres.

 

(e) If actual performance is less than the budgeted norms, a remedial action is taken immediately.

Objectives of Budgetary Control:

 

Budgetary control is essential for policy planning and control. It also acts an instrument of co-ordination.

 

The main objectives of budgetary control are the follows:

 

1. To ensure planning for future by setting up various budgets, the requirements and expected performance of the enterprise are anticipated.

 

3. To operate various cost centres and departments with efficiency and economy.

 

4. Elimination of wastes and increase in profitability.

 

5. To anticipate capital expenditure for future.

 

6. To centralise the control system.

 

7. Correction of deviations from the established standards.

 

8. Fixation of responsibility of various individuals in the organization.

Essentials of Budgetary Control:

 

There are certain steps which are necessary for the successful implementation budgetary control system.

 

These are as follows:

 

1. Organisation for Budgetary Control

 

2. Budget Centres

 

3. Budget Mammal

 

4. Budget Officer

 

5. Budget Committee

 

6. Budget Period

 

7. Determination of Key Factor.

1. Organization for Budgetary Control:

 

The proper organization is essential for the successful preparation, maintenance and administration of budgets. A Budgetary Committee is formed, which comprises the departmental heads of various departments. All the functional heads are entrusted with the responsibility of ensuring proper implementation of their respective departmental budgets.

 

The Chief Executive is the overall in-charge of budgetary system. He constitutes a budget committee for preparing realistic budgets A budget officer is the convener of the budget committee who co-ordinates the budgets of different departments. The managers of different departments are made responsible for their departmental budgets.

2. Budget Centres:

 

A budget centre is that part of the organization for which the budget is prepared. A budget centre may be a department, section of a department or any other part of the department. The establishment of budget centres is essential for covering all parts of the organization. The budget centres are also necessary for cost control purposes. The appraisal performance of different parts of the organization becomes easy when different centres are established.

3. Budget Manual:

 

A budget manual is a document which spells out the duties and also the responsibilities of various executives concerned with the budgets. It specifies the relations amongst various functionaries.

4. Budget Officer:

 

The Chief Executive, who is at the top of the organization, appoints some person as Budget Officer. The budget officer is empowered to scrutinize the budgets prepared by different functional heads and to make changes in them, if the situations so demand. The actual performance of different departments is communicated to the Budget Officer. He determines the deviations in the budgets and the actual performance and takes necessary steps to rectify the deficiencies, if any.

 

He works as a coordinator among different departments and monitors the relevant information. He also informs the top management about the performance of different departments. The budget officer will be able to carry out his work fully well only if he is conversant with the working of all the departments.

 

Essentials of Budgetary Control

5. Budget Committee:

 

In small-scale concerns the accountant is made responsible for preparation and implementation of budgets. In large-scale concerns a committee known as Budget Committee is formed. The heads of all the important departments are made members of this committee. The Committee is responsible for preparation and execution of budgets. The members of this committee put up the case of their respective departments and help the committee to take collective decisions if necessary. The Budget Officer acts as convener of this committee.

6. Budget Period:

 

A budget period is the length of time for which a budget is prepared and employed. The budget period depends upon a number of factors. It may be different for different industries or even it may be different in the same industry or business.

 

The budget period depends upon the following considerations:

 

(a) The type of budget i.e., sales budget, production budget, raw materials purchase budget, capital expenditure budget. A capital expenditure budget may be for a longer period i.e. 3 to 5 years purchase, sale budgets may be for one year.

 

(b) The nature of demand for the products.

 

(c) The timings for the availability of the finances.

 

(d) The economic situation of the country.

 

(e) The length of trade cycles.

 

All the above-mentioned factors are taken into account while fixing period of budgets

7. Determination of Key Factor:

 

The budgets are prepared for all functional areas. These budgets are inter­dependent and inter-related. A proper co-ordination among different budgets is necessary for making the budgetary control a success. The constraints on some budgets may have an effect on other budgets too. A factor which influences all other budgets is known as Key Factor or Principal Factor.

 

There may be a limitation on the quantity of goods a concern may sell. In this case, sales will be a key factor and all other budgets will be prepared by keeping in view the amount of goods the concern will be able to sell. The raw material supply may be limited, so production, sales and cash budgets will be decided according to raw materials budget. Similarly, plant capacity may be a key factor if the supply of other factors is easily available.

 

The key factor may not necessarily remain the same. The raw materials supply may be limited at one time but it may be easily available at another time. The sales may be increased by adding more sales staff, etc. Similarly, other factors may also improve at different times. The key factor also highlights the limitations of the enterprise. This will enable the management to improve the working of those departments where scope for improvement exists.

Advantages of Budgetary Control:

 

The budgetary control system help in fixing the goals for the organization as whole and concerted efforts are made for its achievements. It enables ‘economies in the enterprise.

 

Some of the advantages of budgetary control are:

1. Maximization of Profits:

 

The budgetary control aims at the maximization of profits of the enterprise. To achieve this aim, a proper planning and co ordination of different functions is undertaken. There is a proper control over various capital and revenue expenditures. The resources are put to the best possible use.

2. Co-ordination:

 

The working of different departments and sectors is properly coordinated. The budgets of different departments have a bearing on one another. The co-ordination of various executives and subordinates is necessary for achieving budgeted targets.

3. Specific Aims:

 

The plans, policies and goals are decided by the top management. All efforts are put together to reach the common goal, of the organization. Every department is given a target to be achieved. The efforts are directed towards achieving some specific aims. If there is no definite aim then the efforts will be wasted in pursuing different aims.

4. Tool for Measuring Performance:

 

By providing targets to various departments, budgetary control provides a tool for measuring managerial performance. The budgeted targets are compared to actual results and deviations are determined. The performance of each department is reported to the top management. This system enables the introduction of management by exception.

5. Economy:

 

The planning of expenditure will be systematic and there will be economy in spending. The finances will be put to optimum use. The benefits derived for the concern will ultimately extend to industry and then to national economy. The national resources will be used economically and wastage will be eliminated.

6. Determining Weaknesses:

 

The deviations in budgeted and actual performance will enable the determination of weak spots. Efforts are concentrated on those aspects where performance is less than the stipulated.

7. Corrective Action:

 

The management will be able to take corrective measures whenever there is a discrepancy in performance. The deviations will be regularly reported so that necessary action is taken at the earliest. In the absence of a budgetary control system the deviations can be determined only at the end of the financial period.

8. Consciousness:

 

It creates budget consciousness among the employees. By fixing targets for the employees, they are made conscious of their responsibility. Everybody knows what he is expected to do and he continues with his work uninterrupted.

9. Reduces Costs:

 

In the present day competitive world budgetary control has a significant role to play. Every businessman tries to reduce the cost of production for increasing sales. He tries to have those combinations of products where profitability is more.

10. Introduction of Incentive Schemes:

 

Budgetary control system also enables the introduction of incentive schemes of remuneration. The comparison of budgeted and actual performance will enable the use of such schemes.

 

Budgetary Control

Limitations of Budgetary Control:

 

Despite of many good points of budgetary control there are some limitations of this system.

 

Some of the limitations are discussed as follows:

1. Uncertain Future:

 

The budgets are prepared for the future period. Despite best estimates made for the future, the predictions may not always come true. The future is always uncertain and the situation which is presumed to prevail in future may change. The change in future conditions upsets the budgets which have to be prepared on the basis of certain assumptions. The future uncertainties reduce the utility of budgetary control system.

 

 

2. Budgetary Revision Required:

 

Budgets arc prepared on the assumptions that certain conditions will prevail. Because of future uncertainties, assumed conditions may not prevail necessitating the revision of budgetary targets. The frequent revision of targets will reduce the value of budgets and revisions involve huge expenditures too.

3. Discourage Efficient Persons:

 

Under budgetary control system the targets are given to every person in the organization. The common tendency of people is to achieve the targets only. There may be some efficient persons who can exceed the targets but they will also feel contented by reaching the targets. So budgets may serve as constraints on managerial initiatives.

4. Problem of Co-ordination:

 

The success of budgetary control depends upon the co-ordination among different departments. The performance of one department affects the results of other departments. To overcome the problem of co­ordination a Budgetary Officer is needed. Every concern cannot afford to appoint a Budgetary Officer. The lack of co-ordination among different departments results in poor performance.

5. Conflict Among Different Departments:

 

Budgetary control may lead to conflicts among functional departments. Every departmental head worries for his department goals without thinking of business goal. Every department tries to get maximum allocation of funds and this raises a conflict among different departments.

6. Depends Upon Support of Top Management:

 

Budgetary control system depends upon the support of top management. The management should be enthusiastic for the success of this system and should give full support for it. If at any time there is a lack of support from top management then this system will collapse.