THE IMPACT OF BUDGETARY CONTROL ON THE PROFITABILITY OF MANUFACTURING COMPANIES
This research is on The impact of budgetary control on the profitability of manufacturing companies. Today, the importance of budgetary control can never be over emphasized. Thus, for survival of any business organization, management needs to embark on budget to effect proper planning and control. In this vein, budgeting can be seen as a process of planning and control. Proper budgeting can never affect efficient plans of organization without control. Control as it were is an important tool which must be priced to keep in check with the plans of the organization and for correction of any deviation from the stipulated plans of the organization in question. Hence, a budgetary control comprises of both plan of operation and means of controlling operation with the scope of plan. In pursuant to this, data were collected by personal interview, questionnaires and through researchers observation. Secondary data were also collected from journals and related works. In chapter four, it reviews the response of people, and it was found out through questionnaire that the factor that affects the companys profitability most is the general economic condition in the country as the people stated and cash budget is the best type of budget. This work also recommends in chapter five that business executives must make use of budgetary control to avoid failure in business.
When a person decides to make a motor trip, he usually first secure an up to date road map in order that he may study the various high ways shown on the way, he then selects the route that appears to be the most satisfactory one to reach his desired destination. Before starting his journey he will probably call his local highway department or automobile club to make certain assumptions that the route is reasonably free of detour. Having assured himself that the route is the most satisfactory one, in the light of current highway condition, he will take his map and endeavor to follow the selected route as closely as circumstances permit.
The business which employs system of budgetary control may be likened to the motorist who carefully planned his trip consulted his map and kept in touch with all the highway conditions on route. The budget considered the highway map which shows the road to take to reach his destination. It is rather generally agreed that the successful completion of business activities requires careful plans to be made which should be viewed and carried out.
1.1BACKGROUND OF THE STUDY
The process of preparing and using budget to achieve management objectives is called budgeting. Budgeting is an essential element which is vital to management accounting technique which can benefit all aspect of business if it is understood and properly used. The growing complexity of the business environment and the ever increasing competition among firms in the modern time makes planning /budgeting an inevitable tool for business success.
Successful management is no longer just a matter of flair, skill and determination, a conscious effort is needed to harness available resources towards the achievement of enterprise objectives. Therefore budgeting is one of the tools adopted by management for effective cost planning, control and increase in productivity.
Wildarsky 1984:213 argued that because a budget served diverse purposes, it mean different things to different people, among the various possible interpretations given by him include:
It is a plan
It is a prediction
It is a link between financial resource and human behavior to accomplish policy objectives.
It is a mechanism for making choices among alternative expenditure.
RUFUS WIZON New York said without a budget a business may in order aim lessely. It may never know where it is going or where it should go. Even with a budget a business may not reach its planned objectives or destination, but the exercise of budgetary control will note the deviation from the plan and thus provide the opportunity for necessary corrective action. The making of such plans and the continuous review and execution are the essence of budgetary control.
A brief history/achievement of the company
Vita foam Nigeria PLC is a manufacturing firm that manufactures and distributes polyether, foam products, furniture and upholstery products also adhesives in Nigeria. It was incorporated in 1962 and is headquartered in Oba Akran Avenue, Industrial Estate Ikeja, Lagos, under the chairmanship of Chief Samuel Olaniyi Bolarinde. It was listed on the floor of Nigerian stock exchange in 1978. this company offers flexible polyurethane foams for beddings, mattresses, sofas, pillows, cushions and carpet underplays as well as provides special high load bearing foams and super soft cushioning foams primarily under Galaxy, vita supreme and vita super brand names.
The company is one of the major companies that have contributed to the Nigerian economy with turnover of 576 billion during the 2002 financial year, which is expected to be doubled within the few years. The contribution of the company to the economy cannot pass for a drop of iceberg. In the area of employment, the vita foam Nigeria plc has provided for employment too many that would have been left unemployed.
The company established a N40 billion research and development centers to enhance its research activities commissioned in June 17, 2000 and managed by a Nigerian Scientist.
However, in 2002, it remained the leader in their traditional business of foam manufacturing and this position is complemented by the steady development of their foam business. Recently vita foam has embarked on a reengineering exercise with corporate rebranding company and commissioning of new products. The exercise is aimed at improving productivity, profitability and ensuring greater returns to shareholders.
1.2STATEMENT OF THE PROBLEM
Most often budget and budgetary control research concentrated on its impact in the Federal Government budget and its attempt to control the use of public fund. There is no doubt that some other writeups on budget and budgetary control has concentrated greatly on profit oriented organization, the issue failed to emphasize on the issue of budgetary control which is the bedrock for which budget implementation could be more effective and plans realization efficient.
Budgets are attention directed and forward looking on financial statement. Budget tends to ensure goal congruence and elicit managerial efforts which are both wrapped up in motivation. Budgets relate to objectives and policies to managerial responsibilities, and facilitate accountability. In profit seeking organization budgetary control provide relevant information relating to what the organization wants to achieve and the measure it would adopt to translate its plans into reality. Time has come to direct our searching eyes of budgeting to budgetary control in our manufacturing companies.
1.3PURPOSE OF THE STUDY
The objective of the study is based on the statement raised in the proceeding paragraph. They are:
To ascertain that budgetary control is implemented and to consequently determine how the actual performance can be used to match the budget provided.
To determine whether budgetary control is practicable by vita foam Nigeria plc.
To determine whether the cost of instituting budgetary control is matched with its benefit.
To determine if administrative cost is incurred when trying to control actual performance.
The following questions are considered pertinent for the purpose of this study and will emphasize on the best answers and solutions to these problems.
Does the manufacturing company see the impact of budgetary control schemes as the stepping stone towards organization success
Will adequate budgetary control schemes bring a necessary impact on the profitability of a manufacturing company
Does efficient motivation on the part of the management and subordinate improve the firms performance towards achieving the budget control goal Are they effective
This project is on The impact of budgetary control on the profitability of manufacturing companies. Business organizations need planning to achieve their aims and objective. It thorough planning in an organization cannot be done without involving the act of budgeting. The management has the purpose of providing a feed – foreword process.
The concept of feed-forward process is to provide each manager with guideline for making operation decision on a day –to- day basic. Budgeting deals with plans and monitoring activities to ascertain whether they conform to the plans. This is the control and coordination aspect of budgeting.
Manufacturing industries can only achieve profit maximization by proper planned use of available resource. This is sustained when different activities are efficiently coordinated, and decisions taken in the organization are result oriented. Business organization requires the use of some techniques in the formula and adoption of planned and defined system and tools with a view to achiever set goals. Such tools and systems include budgetary variance analysis and budgetary control. The process of setting goals to be achieve in the future time and determining how these goals are to be reached is described as PLANING, while the process of translating this planning into financial target can be described as BUDGETING.
Reg, H. Garrison, in his opinion, defined budget, thus, a budget is a detailed plan showing how resources will be require and used over some specify time interval. It repented a plan for the future expressed in a formal qualitative terms. The act of preparing a budget is called budgeting. The use of budget to control a firms activities is known as budgeting control ‘’.
1.1 BACKGROUND OF THE STUDY
For any organization to operate meaningfully there has to be clear direction of where it is leading to or what it is aiming to achieve the standard of objectives and a means of monitoring derivatives from standard requires. These considerations can only be met through budgeting, planning as well as controlling.
A budget has been defined as a quantitative plan usually in monetary terms for the forth coming accounting year of the ensuring period. Budgeting planning/short term planning is the process of preparing detailed, short term (usually 1 year) plans for the function, activities and departments of the organization thus converting the long term co-operate plan into yearly action. Budgeting services as a very important tool for planning and control increase in productivity, in that budgeting aids planning for the future, if services as a control function through management by exception which is the assessment of performance for the purpose of controlling. It helps in co-coordinating of the work management in order to coordinate the activities of the organization.
1.2 STATEMENT OF PROBLEM
Generally, organization whether manufacturing or service, required good budgeting for increasing productivity. Budgeting as a tool for planning and controlling does increase productivity. This is the problem of qualified personnel that are required for the purpose of preparation implementation and execution of budgeting, areas of responsibility will be decided by management and also budgeting pressure is another problem. The study will therefore be focused on whether budgeting contribute towards increasing productivity in organization or not.
1.3 OBJECTIVES OF THE STUDY
In view of the glaring problems as mentioned above the researchers main purpose of this study is to look carefully as the system of budgeting. This will enable the researcher to discover and bring to light any loop hole and lapses that may contribute on their little ways to aggregate private sector problem. Therefore, the objectives of the study are as follows:
- To examine the system of budgeting, planning and control in order to assess adequacy in productivity.
- To find out the extent budgeting serves in planning and increasing productivity.
- To examine facts about the organization and it mode of operation with regards to productivity.
- To identify the fact about operation and mode of operation.
1.4 SIGNIFICANCE OF THE STUDY
The significance of this study is essential on its benefit and contribution to individual and organization first and foremost. This study will serve as important objectives reference to top executive of organization who wants to achieve efficiency in production. It will also be significant to students who want to carry out further research on the area of study secondly, the finding of this study will be useful to both the organization and any other similar organization as well as general public in the field as it depicts the nature of problem associated with budgeting in this part of the country. Finally, this study will also cover the public as an essential requirement for the award of higher national diploma.
1.5 RESEARCH QUESTION
- How does managers use budgeting in planning and control in author the goals of a business?
- How does decision making performed in a manufacturing industry using budgeting as a tool for planning and control?
- How has utilization of resources achieved with the use of budgeting and budgetary control?
1.6 SCOPE AND LIMITATIONS OF THE STUDY
This study covers only selected workers of vita foam plc within Aba branch, although they were still other workers in other branches in different state, but the research was restricted to Aba branch.
One of the major problems encountered in the course of this study was difficulty in obtaining data from the management body of the organization due to fear of disclosing their management strategies to competitors. Time constraints were also a problem in the course of this research work.
1.7 ASSUMPTIONS OF THE STUDY
This will help us to understand that budgetary control should be precise in format and simple to understand. It should be flexible and not rigid in application.
This will hide inefficiencies instead of revealing them where a proper evaluation system is lacking.
Management should use budgetary control with intelligence and foresight along with other managerial techniques.
The adequacy of budgetary control, thus depend upon the adequacy of managerial judgment.
1.8 DEFINITION OF TERMS
PLANNING – According to Darton Mc farland defined planning as the activity where the manager analyses present condition to determine ways of reaching a desired future state.
FORECASTING –This is the procedures and techniques for predicting condition or event that are expected to prevail in the future.
BUDGETING –This is a formulation of plans in a given period in numerical term.
BUDGET –This is defined as a future plan of action for the whole organization or a section there of, which is expressed in monetary term.
BUDGETARY CONTROL –This is the establishment of budget, relating to the responsibility of the executives to the requirement of the policy and the continuous comparism of actual performance with budgeted level so as to secure either by individual or collective action the objective of such policies.
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